UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2001
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Commission file number 1-2257
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TRANS-LUX CORPORATION
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(Exact name of Registrant as specified in its charter)
Delaware 13-1394750
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
110 Richards Avenue, Norwalk, CT 06856-5090
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(203) 853-4321
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(Address, zip code, and telephone number, including
area code, of Registrant's principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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Common Stock, $1.00 par value American Stock Exchange
7 1/2% Convertible Subordinated
Notes due 2006 American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K. [ X ]
CONTINUED
TRANS-LUX CORPORATION
2001 Form 10-K Cover Page Continued
As of the close of business on March 28, 2002, there were outstanding, 973,243
shares of the Registrant's Common Stock and 287,505 shares of its Class B Stock.
The aggregate market value of the Registrant's Common and Class B Stock (based
upon the closing price on the American Stock Exchange) held by non-affiliates
on March 28, 2002 (based on the last sale price on the American Stock Exchange
as of such date) was $5,160,032. (The value of a share of Common Stock is used
as the value for a share of Class B Stock, as there is no established market for
Class B Stock, which is convertible into Common Stock on a share-for-share
basis.)
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Registrant's definitive Proxy Statement for the Annual Meeting
of Stockholders to be held May 30, 2002, to be filed with the Commission within
120 days of the Registrant's fiscal year end, (the "Proxy Statement") are
incorporated by reference into Part III, Items 10-13 of this Form 10-K to the
extent stated herein.
TRANS-LUX CORPORATION
2001 Form 10-K Annual Report
Table of Contents
PART I
Page
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ITEM 1. Business 1
ITEM 2. Properties 7
ITEM 3. Legal Proceedings 7
ITEM 4. Submission of Matters to a Vote of Security Holders 8
PART II
ITEM 5. Market for the Registrant's Common Equity and
Related Stockholder Matters 8
ITEM 6. Selected Financial Data 9
ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk 13
ITEM 8. Financial Statements and Supplementary Data 14
ITEM 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 35
PART III
ITEM 10. Directors and Executive Officers of the Registrant 35
ITEM 11. Executive Compensation 36
ITEM 12. Security Ownership of Certain Beneficial Owners
and Management 36
ITEM 13. Certain Relationships and Related Transactions 36
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 36
Signatures 39
PART I
ITEM 1. BUSINESS
Unless the context otherwise requires, the term "Company" as used herein
refers to Trans-Lux Corporation and its subsidiaries. The Company is a
manufacturer, distributor, and marketer of large-scale, real-time electronic
information displays for both indoor and outdoor use. These display systems
utilize LED (light emitting diodes); plasma screens, and light bulb technologies
to display real-time information entered by the user or via a third party
information supplier. The Company provides high quality, reliable display
products configured to suit its customers needs, and offers on-site
installation, service and maintenance. The Company's display products include
data, graphics, and video displays for stock and commodity exchanges, financial
institutions, sports stadiums and venues, casinos, convention centers,
corporate, government, theatres, retail, airports, and numerous other
applications. In addition to its core display business, the Company also owns
and operates a chain of motion picture theatres in the western Mountain States,
a national film booking service and income-producing real estate properties.
ELECTRONIC INFORMATION DISPLAY PRODUCTS
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The Company's high performance electronic information displays are used to
communicate messages and information in a variety of indoor and outdoor
applications. The Company's product line encompasses a wide range of
state-of-the-art electronic displays in various shape, size and color
configurations. Most of the Company's display products include hardware
components and sophisticated software. In both the indoor and outdoor markets
in which the Company serves, the Company adapts basic product types and
technologies for specific use in various niche market applications. The Company
also operates a direct service network throughout the United States and parts of
Canada and Australia, which performs on-site installation, service and
maintenance for its customers and others.
The Company employs a modular engineering design strategy, allowing basic
"building blocks" of electronic modules to be easily combined and configured in
order to meet the broad application requirements of the industries it serves.
This approach ensures product flexibility, reliability, ease of service and
minimum spare parts requirements.
The Company's electronic information display market is broken down into two
distinct segments: the Indoor division and the Outdoor division. Electronic
information displays are used by financial institutions, including brokerage
firms, banks, energy companies, insurance companies and mutual fund companies;
by sports stadiums and venues; by educational institutions; by outdoor
advertising companies; by corporate and government communication centers; by
retail outlets; by casinos, race tracks and other gaming establishments; in
airports, train stations, bus terminals, and other transportation facilities; on
highways and major thoroughfares; by movie theatres; by health maintenance
organizations, and in various other applications.
Indoor Division: The indoor electronic display market is currently
dominated by three categories of users: financial, government and private, and
gaming. The financial market sector, which includes trading floors, exchanges,
brokerage firms, banks, mutual fund companies and energy companies, has long
been a user of electronic information displays due to the need for real-time
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dissemination of data. The major stock and commodity exchanges depend on
reliable information displays to post stock and commodity prices, trading
volumes, interest rates and other financial data. Brokerage firms continue to
install electronic ticker displays for both customers and brokers; they have
also installed other larger displays to post major headline news events in their
brokerage offices to enable their sales force to stay up-to-date on events
affecting general market conditions and specific stocks. The changing
regulatory environment in the financial marketplace has resulted in the influx
of banks and other financial institutions into the brokerage business and the
need for these institutions to use information displays to advertise product
offerings to consumers. The Indoor division has a new line of advanced last
sale ticker displays, full color LED tickers and video displays.
The government and private sector includes applications found in major
corporations, public utilities and government agencies for the display of
real-time, critical data in command/control centers, data centers, help desks,
visitor centers, inbound/outbound telemarketing centers and for employee
communications. Electronic displays have found acceptance in applications for
the healthcare industry such as outpatient pharmacies; military hospitals and
HMOs to automatically post patient names when prescriptions are ready for pick
up. Theatres use electronic displays to post current box office and ticket
information, directional information, promote concession sales and use the
Company's Rear WindowTM system for the hearing-impaired. Information displays
are consistently used in airports, bus terminals and train stations to post
arrival and departure, gate and baggage claim information, all of which help to
guide passengers through these facilities.
The gaming sector includes casinos and Indian gaming establishments.
These establishments generally use large information displays to post odds for
race and sporting events and to display timely information such as results,
track conditions, jockey weights and scratches. Casinos also use electronic
displays throughout their facilities to advertise to and attract gaming patrons.
This includes using electronic displays in conjunction with slot machines using
enhanced serial controllers to attract customer attention to potential payoffs
and thus increase customer play. Indoor equipment generally has a lead-time of
30 to 120 days depending on the size and type of equipment ordered and material
availability.
Outdoor Division: The outdoor electronic display market is even more
diverse than the Indoor division. Displays are being used by sports stadiums,
sports venues, banks and other financial institutions, gas stations, highway
departments, educational institutions and outdoor advertisers attempting to
capture the attention of passers-by. The Outdoor division has a new line of LED
message centers and video displays available in monochrome and full color. The
Company has utilized its strong position in the indoor market combined with
several acquisitions to enhance its presence in the outdoor display market.
Outdoor displays are installed in amusement parks, entertainment facilities,
high schools, major and minor league parks, professional and college sports
stadiums, racetracks, military installations, bridges and other roadway
installations, automobile dealerships, banks and other financial institutions.
Outdoor equipment generally has a lead-time of 10 to 120 days depending on the
size and type of equipment ordered and material availability.
Sales Order Backlog (excluding leases): The amount of sales order backlog at
December 31, 2001 was approximately $9.3 million compared with the December 31,
2000 sales order backlog of $3.9 million. The December 31, 2001 backlog will be
recognized in 2002. These amounts include only the sale of its products, they
do not include new lease orders or renewals of existing lease agreements
presently in-house.
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ENGINEERING AND PRODUCT DEVELOPMENT
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The Company's ability to compete and operate successfully depends upon, among
other factors, its ability to anticipate and respond to the changing
technological and product needs of its customers. The Company continually
examines and tests new display technologies and develops enhancements to its
existing product line in order to meet the needs of its customers.
The Company developed a full line of RainbowWall(R) high-resolution full
color LED displays for indoor and outdoor applications. RainbowWall delivers
brilliant video and graphics in billions of colors to sports and commercial
markets where the presentation of live-action, advertising, promotions and
entertainment is of central importance. ProLine(R), the Company's proprietary
controller software, is designed for RainbowWall applications that require
dynamic, fast-changing information and imagery. ProLine allows live or recorded
video, cable TV, newswire feeds and animations to be combined with text on a
single display in flexible zone layouts.
Continued development of new indoor products includes progressive meter and
serial controller systems for use in the gaming industry; new monochrome and
tricolor ticker displays utilizing improved LED display technology, curved and
flexible displays; higher speed processors for faster data access and improved
update speed; integration of blue LED's to provide full color text, graphics and
video displays; wireless controlled displays and a new graphics interface to
display more data in higher resolutions.
The Company developed full-color LED video displays for the outdoor market
which has applications particularly in the sports market where enhancing the
presentation of live action is of central importance. One example is the
recently introduced LED RainbowRibbon(R) fascia display system, which optimizes
advertising space on arena and stadium tier fascias by smoothly transitioning
between video, advertising, animations, scoring/statistics layouts and text.
As part of its ongoing development efforts, the Company seeks to package
certain products for specific market segments as well as to continually track
emerging technologies that can enhance its products. Full color, live video and
digital input technology continue to be developed. The Company is currently
focused on certain technologies that incorporate these features and which are
expected to provide a choice of products for the custom applications demanded by
its customers.
The Company maintains a staff of 50 people who are responsible for product
development and support. The engineering and product enhancement and
development efforts are supplemented by outside independent engineering
consulting organizations and colleges where required. Engineering expense, and
product enhancement and development amounted to $4,098,000, $4,244,000 and
$4,280,000 in 2001, 2000 and 1999, respectively.
MARKETING AND DISTRIBUTION
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The Company markets its indoor and outdoor electronic information display
products primarily through its 43 direct sales representatives, 6 telemarketers
and a network of independent dealers and distributors. Our exclusive
affiliation with a sports marketing firm, established in 2000, resulted in
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orders in fiscal 2001. The Company uses a number of different techniques in
order to attract new customers, including direct marketing efforts by its sales
force to known or potential users of information displays, advertising in
industry publications, and exhibiting at approximately 32 domestic and
international trade shows annually.
In the outdoor market, the Company supplements these efforts by using a
network of independent dealers and distributors who market and sell its
products. Working with software vendors and utilizing the internet to expand
the quality and quantity of the multimedia content that can be delivered to our
displays, we are able to offer customers total communications packages.
Internationally, the Company uses a combination of internal sales people and
independent distributors to market its products outside the U.S. The Company
currently has assembly operations, service centers and sales offices in New
South Wales, Australia, Toronto, Canada and Brampton, Canada. The Company has
existing relationships with approximately 23 independent distributors worldwide
covering Europe, South and Central America, Canada, Asia and Australia.
International sales have represented less than 10% of total revenues in the past
three years, but the Company believes that it is well positioned for expansion.
Headquartered in Norwalk, Connecticut, the Company has major sales and service
offices in New York; Chicago; Las Vegas; Norcross, Georgia; Torrance,
California; Toronto, Canada; Brampton, Canada; Logan, Utah; Des Moines, Iowa;
and New South Wales, Australia, as well as approximately 60 satellite offices in
the United States and Canada.
The Company's equipment is both leased and sold. A significant portion of the
electronic information display revenues is from equipment rentals with current
lease terms ranging from 30 days to ten years.
The Company's revenues in 2001, 2000 and 1999 did not include any single
customer that accounted for more than 10% of total revenues.
MANUFACTURING AND OPERATIONS
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The Company's production facilities are located in Norwalk, Connecticut;
Logan, Utah; Des Moines, Iowa; and New South Wales, Australia and consist
principally of the manufacturing, assembly and testing of display units, and
related components. The Company performs most subassembly and all final
assembly of its products. During 2000, the Company completed the construction
of a new 55,000 square foot outdoor display manufacturing facility in Logan,
Utah.
All product lines are design engineered by the Company and controlled
throughout the manufacturing process. The Company has the ability to produce
printed circuit board fabrications, very large sheet metal fabrications, cable
assemblies, and surface mount and through-hole designed assemblies. The Company
produces more than 30,000 board assemblies annually which are tested with
state-of-the-art automated testing equipment. Additional board assembly
capacity is increased through outsourcing. The Company's production of many of
the subassemblies and all of the final assemblies gives the Company the control
needed for on-time delivery to its customers.
4
The Company also has the ability to rapidly modify its product lines. The
Company's displays are designed with flexibility in mind, enabling the Company
to customize its displays to meet different applications with a minimum of
lead-time. The Company also partners with large distributors via volume
purchase agreements, giving it the benefit of a third party stocking its
components ready for delivery on demand. The Company designs certain of its
materials to match components furnished by suppliers. If such suppliers were
unable to provide the Company with those components, the Company would have to
contract with other suppliers to obtain replacement sources. Such replacement
might result in engineering design changes, as well as delays in obtaining such
replacement components. The Company believes it maintains suitable inventory
and has contracts providing for delivery of sufficient quantities of such
components to meet its needs. The Company also believes there presently are
other qualified vendors of these components. The Company does not acquire a
material amount of purchases directly from foreign suppliers, but certain
components are manufactured by foreign sources.
The Company is ISO-9001 registered by Underwriters Laboratories at its Norwalk
plant facility. The Company's products are also third-party certified as
complying with applicable safety, electromagnetic emissions and susceptibility
requirements worldwide. The Company believes these distinctions in its industry
give it a competitive advantage in the global marketplace.
SERVICE AND SUPPORT
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The Company emphasizes the quality and reliability of its products and the
ability of its field service personnel to provide timely and expert service to
the Company's installed base. The Company believes that the quality and
timeliness of its on-site service personnel are important components in the
Company's success. The Company provides turnkey installation and support for
the products it leases and sells in the United States, Canada and Australia.
The Company provides training to end-users and provides ongoing support to users
who have questions regarding operating procedures, equipment problems or other
issues. The Company provides installation and service to those who purchase and
lease equipment. In the market segments covered by the Company's distributors,
the distributors offer support for the products they sell.
Personnel based in regional and satellite service locations throughout the
United States, Canada and Australia provide high quality and timely on-site
service for the installed rental equipment and maintenance base and other types
of customer owned equipment. Purchasers or lessees of the Company's larger
products, such as financial exchanges, casinos and sports stadiums, often retain
the Company to provide on-site service through the deployment of a service
technician who is on-site daily or for the scheduled event. The Company also
maintains a National Technical Services Center in Norcross, Georgia, which
performs equipment repairs and dispatches service technicians on a nationwide
basis. The Company's field service is augmented by various outdoor service
companies in the United States, Canada and overseas. From time to time the
Company uses various third-party service agents to install, service and/or
assist in the service of outdoor displays for reasons that include geographic
area, size and height of displays.
5
COMPETITION
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The Company's offer of short and long-term rentals to customers and its
nationwide sales, service and installation capabilities are major competitive
advantages in the display business. The Company believes that it is the largest
supplier of large-scale stock, commodity, sports and race book gaming displays
in the United States, as well as one of the largest outdoor electronic display
and service organizations in the country.
The Company competes with a number of competitors, both larger and smaller
than itself, and with products based on different forms of technology. In
addition, there are several companies whose current products utilize similar
technology and who possess the resources necessary to develop competitive and
more sophisticated products in the future.
THEATRE OPERATIONS
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The Company currently operates 64 screens in 12 locations in the western
Mountain States. In 1999, the Company opened a single theatre and converted a
four-plex theatre to a six-plex in Laramie Wyoming, closed a single theatre and
opened a six-plex theatre in Espanola, New Mexico and opened a six-plex theatre
in Dillon, Colorado; in 2000, the Company opened an eight-plex theatre in Los
Lunas, New Mexico and a six-plex theatre in the Green Valley, Arizona area and
closed a single theatre in Laramie, Wyoming; and in 2001, the Company closed a
three-plex theatre in Los Alamos, New Mexico. The Company also operates a
twelve-plex theatre in Loveland, Colorado which is a 50% owned joint venture
partnership. The Company's theatre revenues are generated from box office
admissions, theatre concessions, theatre rentals and other sales. Theatre
revenues are generally seasonal and coincide with the release dates of major
films during the summer and holiday seasons. The Company is not currently
operating any multimedia entertainment venues, but continues to stay abreast of
innovations in this area of technology and continues to investigate new
opportunities. In the first quarter of 2000, the Company opened a film booking
office, through which it arranges film exhibition for its own theatres and for
other independent theatres around the country.
The Company's motion picture theatres are subject to varying degrees of
competition in the geographic areas in which they operate. In one area,
theatres operated by national circuits compete with the Company's theatres. The
Company's theatres also face competition from all other forms of entertainment
competing for the public's leisure time and disposable income.
INTELLECTUAL PROPERTY
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The Company owns or licenses a number of patents and holds a number of
trademarks for its display equipment and theatrical enterprises and considers
such patents, licenses and trademarks important to its business.
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EMPLOYEES
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The Company has approximately 660 employees as of February 28, 2002 of which
approximately 470 employees support the Company's electronic display business.
Less than 1% of the employees are unionized. The Company believes its employee
relations are good.
ITEM 2. PROPERTIES
The Company's headquarters and principal executive offices are located at 110
Richards Avenue, Norwalk, Connecticut. The Company owns the 102,000 square foot
facility located at such site, which is occupied by the Company and is used for
administration, sales, engineering, production and assembly of its indoor
display products. Approximately 14,000 square feet of the building is currently
leased to others.
In addition, the Company owns facilities in:
Norcross, Georgia
Des Moines, Iowa
Logan, Utah
Theatre Properties in:
Sahuarita, Arizona
Dillon, Colorado
Durango, Colorado
Espanola, New Mexico
Los Lunas, New Mexico
Santa Fe, New Mexico
Taos, New Mexico
Laramie, Wyoming
The Company also leases 13 premises throughout North America and in Australia
for use as sales, service and/or administrative operations, and leases 4 theatre
locations. The aggregate rental expense was $553,000, $687,000 and $601,000 for
the years ended December 31, 2001, 2000 and 1999, respectively.
ITEM 3. LEGAL PROCEEDINGS
The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business. During June 1999, a jury in the state of New
Mexico awarded a former employee of the Company $15,000 in damages for lost
wages and emotional distress and $393,000 in punitive damages on a retaliatory
discharge claim. The Company denied the charges on the basis that the
termination was proper and appealed the verdict, which was affirmed. The
Company filed a certiorari petition which has been granted. Subsequent to year-
end, the Company reached a settlement with the plaintiff for an amount less
than the amount previously accrued, a portion of which is subject to insurance
recovery. In January 2000, a second former employee of the Company commenced a
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retaliatory discharge action seeking compensatory and punitive damages in an
unspecified amount. The Company has denied such allegations and asserted
defenses including that the former employee resigned following her failure to
timely report to work. Management has received certain claims by customers
related to contractual matters, which are being discussed, and believes that it
has adequate provisions for such matters. The Company had been involved in
arbitration related to the construction of its six-plex movie theatre in Dillon,
Colorado. The contractor had alleged claims against the Company in the amount
of $489,000 due under a contract. The Company has denied any liability and has
asserted claims in the amount of $467,000 that, among other matters, the
contractor failed to build the theatre in accordance with the architectural
plans. The outcome of this arbitration was payment in the amount of $84,000 to
the contractor.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
(a) The Company's Common Stock is traded on the American Stock Exchange under
the symbol "TLX." Sales prices are set forth in (d) below.
(b) The Company had approximately 725 holders of record of its Common Stock
and approximately 66 holders of record of its Class B Stock as of
March 28, 2002.
(c) The Board of Directors approved four quarterly cash dividends of $.035 per
share for Common Stock and $.0315 per share for Class B Stock during 2001.
Management and the Board of Directors will continue to review payment of
the quarterly cash dividends. The Company is subject to an annual
limitation of $750,000 on the payment of cash dividends.
(d) The range of Common Stock prices on the American Stock Exchange are set
forth in the following table:
High Low
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2001
First Quarter $5.250 $3.563
Second Quarter 7.050 4.200
Third Quarter 6.000 4.000
Fourth Quarter 6.700 4.000
2000
First Quarter $7.875 $6.000
Second Quarter 6.875 4.250
Third Quarter 5.938 4.375
Fourth Quarter 4.875 3.125
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ITEM 6. SELECTED FINANCIAL DATA
(a) The following table sets forth selected consolidated financial data with
respect to the Company for the five years ended December 31, 2001, which
were derived from the audited consolidated financial statements of the
Company and should be read in conjunction with them.
Years Ended 2001 2000 1999 1998 1997
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In thousands, except per share data
Revenues $ 70,171 $ 66,763 $ 62,818 $63,778 $53,363
Net income (loss) 509 (2,231) 788 1,699 1,510
Earnings (loss) per share:
Basic $ 0.40 $ (1.77) $ 0.61 $ 1.32 $ 1.18
Diluted $ 0.40 $ (1.77) $ 0.61 $ 0.85 $ 0.80
Cash dividends per share:
Common stock $ 0.14 $ 0.14 $ 0.14 $ 0.14 $ 0.14
Class B stock $ 0.126 $ 0.126 $ 0.126 $ 0.126 $ 0.126
Average common shares outstanding 1,261 1,261 1,286 1,290 1,281
Total assets $113,897 $113,015 $112,448 $91,146 $88,978
Long-term debt 69,250 68,552 65,952 49,523 49,452
Stockholders' equity 23,568 23,696 26,013 25,851 24,332
(b) The following table sets forth quarterly financial data for the years
ended December 31, 2001 and 2000:
Quarter Ended (unaudited) March 31 June 30 September 30 December 31 (1)
- ------------------------- -------- ------- ------------ ---------------
In thousands, except per share data
2001
Revenues $17,397 $17,076 $18,735 $16,963
Gross profit 6,138 5,731 6,104 5,563
Income before income taxes 46 133 545 338
Net income 25 74 299 111
Earnings per share $ 0.02 $ 0.06 $ 0.24 $ 0.08
Cash dividends per share:
Common stock $ 0.035 $ 0.035 $ 0.035 $ 0.035
Class B stock $0.0315 $0.0315 $0.0315 $0.0315
2000
Revenues $14,652 $16,612 $18,893 $16,606
Gross profit 4,623 5,820 6,613 3,733
Income (loss) before income taxes (1,250) 40 82 (1,970)
Net income (loss) (688) 23 44 (1,610)
Earnings (loss) per share $ (0.55) $ 0.02 $ 0.04 $ (1.28)
Cash dividends per share:
Common stock $ 0.035 $ 0.035 $ 0.035 $ 0.035
Class B stock $0.0315 $0.0315 $0.0315 $0.0315
(1) The Company recorded the following items during the quarter ended December
31, 2001: (1) a decrease to net income of $110,000 related to an increase in
the allowance for doubtful accounts, (2) an increase to net income of $159,000
related to the settlement of a legal matter (see Note 15), and (3) an increase
in the effective tax rate for the year, which had the effect of increasing the
quarterly income tax expense by approximately $50,000. During the quarter ended
December 31, 2000, the Company recorded: (1) an impairment charge of
$1,044,000 (net of tax) related to an intangible theatre asset and equipment at
its older Lake Dillon, CO theatre and certain older outdoor display
manufacturing equipment, (2) a decrease to net income (loss) of $72,000 related
to an outdoor sports display sales contract, and (3) a reduction in the
effective tax benefit rate for the year, which had the effect of reducing the
quarterly income tax benefit by approximately $192,000.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
Trans-Lux is a full service provider of integrated multimedia systems for
today's communications environments. The essential elements of these systems
are the real-time, programmable electronic information displays we manufacture,
distribute and service. Designed to meet the evolving communications needs of
both the indoor and outdoor markets, these displays are used primarily in
applications for the financial, banking, gaming, corporate, transportation,
entertainment and sports industries. In addition to its display business, the
Company owns and operates a chain of motion picture theatres in the western
Mountain States. The Company operates in three reportable segments: Indoor
Display, Outdoor Display, and Entertainment/Real Estate.
The Indoor Display segment includes worldwide revenues and related expenses
from the rental, maintenance and sale of indoor displays. Included in this
segment are the financial, gaming, government and corporate industries. The
Outdoor Display segment includes worldwide revenues and related expenses from
the rental, maintenance and sale of outdoor displays. Included in this segment
are the custom sports, catalog sports, retail and commercial industries. The
Entertainment/Real Estate segment includes the operations of the motion
picture theatres in the western Mountain States, a national film booking
service, and income-producing real estate properties.
Critical Accounting Policies and Estimates
Management's Discussion and Analysis of Financial Condition and Results of
Operations discusses the Company's consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. On an on-going basis, management
evaluates its estimates and judgments, including those related to percentage of
completion, bad debts, inventories, intangible assets, income taxes, warranty
obligations, retirement benefits, contingencies and litigation. Management
bases its estimates and judgments on historical experience and on various other
factors that are believed to be reasonable under the circumstances, the results
of which form the basis for making judgments about the carrying values of assets
and liabilities that are not readily apparent from other sources. Actual
results may differ from these estimates under different assumptions or
conditions.
Management believes the following critical accounting policies, among others,
affect its more significant judgments and estimates used in the preparation of
its consolidated financial statements. The Company recognizes revenue on
long-term equipment sales contracts using the percentage of completion method
based on estimated incurred costs to the estimated total cost for each contract.
Should total cost be different than estimated total cost, additional or a
reduction of cost of sales may be required. The Company maintains allowances
for doubtful accounts for estimated losses resulting from the inability of its
customer to make required payments. Should non-payment by customers differ from
the Company's estimates, revision to increase or decrease the allowance for
doubtful accounts may be required. The Company provides for the estimated cost
of product warranties at the time revenue is recognized. While the Company
engages in product quality programs and processes, including evaluating the
quality of the component suppliers, the warranty obligation is affected by
product failure rates. Should actual product failure rates differ from the
Company's estimates, revisions to increase or decrease the estimated warranty
liability may be required. The Company writes down its inventory for estimated
obsolescence equal to the difference between the carrying value of the inventory
and the estimated market value based upon assumptions about future demand and
market conditions. If actual future demand or market conditions are less
favorable than those projected by management, additional inventory write-downs
may be required. The Company evaluates intangible assets for possible
impairment when events or changes in circumstances indicate that the carrying
amount of such assets may not be recoverable. Future adverse changes in market
conditions or poor operating results of underlying assets could result in an
inability to recover the carrying value of the assets , thereby possibly
requiring an impairment charge in the future. The Company records a valuation
allowance to reduce its deferred tax assets to the amount that it believes is
more likely than not to be realized. While the Company has considered future
taxable income and ongoing feasible tax planning strategies in assessing the
need for the valuation allowance, in the event the Company were to determine
that it would not be able to realize all or part of its net deferred tax assets
in the future, an adjustment to the deferred tax assets would be charged to
income in the period such determination was made. Likewise, should the Company
determine that it would be able to realize its deferred tax assets in the future
in excess of its net recorded amount, an adjustment to the deferred tax assets
would increase income in the period such determination was made.
Results of Operations
2001 Compared to 2000
Total revenues for the year ended December 31, 2001 increased 5.1% to $70.2
million from $66.8 million for the year ended December 31, 2000. Indoor display
revenues increased $1.1 million or 4.5%. Of this increase, indoor display
equipment rentals and maintenance revenues increased $726,000 or 4.6%, primarily
due to new rental and maintenance contracts and renewal of existing contracts,
and indoor display equipment sales increased $360,000 or 4.3%, primarily in the
gaming and financial industries segment.
Outdoor display revenues increased $1.1 million or 3.6%. Of this increase,
outdoor display equipment sales increased $1.4 million or 6.4%, primarily in the
custom outdoor sports segment. This increase was offset by the decrease in
outdoor display equipment rentals and maintenance revenues of $349,000 or 4.3%,
primarily due to the continued expected revenue decline in the outdoor rental
and maintenance bases previously acquired.
Entertainment and real estate revenues increased $1.2 million or 10.3%. This
increase is primarily from the revenues from two newly constructed multiplex
theatres consisting of 14 screens in Los Lunas, NM and Sahuarita, AZ, which
opened in February 2000 and May 2000, respectively, and an increase in overall
admissions and ticket prices at the existing cinemas.
Total operating income for the year ended December 31, 2001 increased 45.6% to
$12.0 million from $8.3 million for the year ended December 31, 2000. Indoor
display operating income increased $458,000 or 6.1%, primarily as a result of
the increase in revenues. The cost of indoor displays represented 46.4% of
related revenues in 2001 compared to 45.7% in 2000. The cost of indoor displays
as a percentage of related revenues increased primarily due to a change in the
volume mix. Indoor display cost of equipment sales increased $464,000 or 11.9%,
primarily due to increased volume. Indoor display cost of equipment rentals and
maintenance increased $214,000 or 3.0%, largely due to increased depreciation
expense, mainly due to the increase in equipment on rental. Indoor display
general and administrative expenses decreased slightly.
Outdoor display operating income increased to $1.6 million in 2001 compared to
10
$370,000 in 2000, primarily as a result of an increase in revenues and a
decrease in general and administrative expenses. The cost of outdoor displays
represented 77.5% of related revenues in 2001 compared to 77.8% in 2000.
Outdoor display cost of equipment sales increased $1.1 million or 6.2%,
principally due to the increase in volume and the higher content of raw
materials due to the new LED technology and installation costs. Outdoor display
cost of equipment rentals and maintenance decreased $321,000 or 5.0%, primarily
due to reduced field service costs mainly as a result of the expected decline in
the outdoor rental and maintenance bases previously acquired. Outdoor display
general and administrative expenses decreased $843,000 or 13.1%, primarily due
to the consolidation of operations from prior acquisitions and a cost-cutting
program put into place in the fourth quarter of 2000. Cost of indoor and
outdoor equipment rentals and maintenance includes field service expenses, plant
repair costs, maintenance and depreciation.
Entertainment and real estate operating income increased $2.1 million, to
$2.5 million in 2001, primarily due to the increase in revenues due to theatre
expansion, an increase in overall admissions and ticket prices in the existing
cinemas, and the write-off of the $1.3 million intangible theatre asset and
equipment at the older Lake Dillon, CO theatre in 2000. Under the terms of its
lease, the Company is obligated to operate this theatre and recorded a loss of
approximately $250,000 in 2001. When compared to 2000 (before the write-off),
the entertainment and real estate operating income would have increased $811,000
or 47.1%. The cost of entertainment and real estate represented 78.9% of
related revenues for the year ended December 31, 2001 and 82.5% (before the
write-off) in 2000. Cost of entertainment and real estate, which includes film
rental costs and depreciation expense, increased $543,000 or 5.5% in 2001 when
compared to the year 2000 (before the write-off) due to the expansion of theatre
operations and an increase in overall admissions in the existing cinemas.
Entertainment and real estate general and administrative expenses decreased
$84,000 or 11.9% due to a reduction in payroll costs.
Corporate general and administrative expenses decreased $446,000 or 6.9%,
principally due to a settlement of a legal matter for an amount less than the
amount previously accrued (see Note 15), partially offset by an increase in the
allowance for doubtful accounts, which were both recorded in the fourth quarter
of 2001, and a cost cutting program put into place in the fourth quarter of
2000.
Net interest expense decreased $160,000, which is primarily attributable to
the decrease in variable interest rates in 2001 vs. 2000 offset by an increase
in long-term debt to fund increased operating activities. The Company uses its
revolving credit facility to meet its short-term working capital requirements.
Other income primarily relates to the gain from the sale of a theatre leasehold
and the earned income portion of municipal forgivable loans, offset partially by
a loss from the sale of the former Logan, UT manufacturing facility. The income
from joint venture relates to the operations of the theatre joint venture,
MetroLux Theatre in Loveland, CO.
The effective tax rate for the year ended December 31, 2001 was 52.0%. The
tax rate was unfavorably impacted primarily by the inability to recognize tax
benefits for losses of one foreign subsidiary and a higher tax rate in another
foreign subsidiary. For the year ended December 31, 2000, the effective tax
benefit rate was 28.0%, which was unfavorably impacted primarily by the
inability to recognize tax benefits for losses of a foreign subsidiary. Such
benefits could be realized in the future to the extent the foreign subsidiary
shows profits.
The terrorist attacks of September 11, 2001 and their aftermath has not had a
material adverse impact on the results of the Company, but may temporarily
affect future sales of indoor displays in the financial industries segment as
certain financial companies plan for their relocation. The Company had indoor
rental and maintenance revenues generated from signage located at the World
Trade Center and the surrounding area, which are subject to insurance
recoveries.
2000 Compared to 1999
The Company's total revenues for the year ended December 31, 2000 increased 6.3%
to $66.8 million from $62.8 million for the year ended December 31, 1999.
Indoor display revenues increased 4.0% to $24.4 million in 2000 from $23.4
million in 1999. Of this increase, $677,000 or 4.4% was in the indoor display
equipment rentals and maintenance revenues, primarily due to new rental and
maintenance contracts and renewal of existing contracts. Indoor display sales
increased $266,000 or 3.3%, primarily in the financial industries segment.
Outdoor display revenues decreased 2.6% to $30.5 million in 2000 from $31.3
million in 1999. Of this decrease, $141,000 or 1.7% was in the outdoor display
equipment rentals and maintenance revenues, primarily due to the continued
expected revenue decline in the outdoor rental and maintenance bases previously
acquired. Outdoor display sales decreased $664,000 or 2.9%, primarily in the
custom outdoor sports segment. Entertainment and real estate revenues increased
47.3% to $11.9 million in 2000 from $8.1 million in 1999. This increase is
primarily from the revenues from the four newly constructed multiplex theatres
consisting of 26 screens in Dillon, CO, Espanola, NM, Los Lunas, NM and
Sahuarita, AZ, which opened between August 1999 and May 2000, and the
acquisition of two theatres in Laramie, WY in May 1999.
Total operating income for the year ended December 31, 2000 decreased 22.2% to
$8.3 million from $10.6 million for the year ended December 31, 1999. Indoor
display operating income increased $141,000 or 1.9%. The cost of indoor
displays represented 45.7% of related revenues in 2000 compared to 44.8% in
1999. Indoor display cost of equipment rentals and maintenance increased
$537,000 or 8.1%, largely due to increased depreciation expense and field
service costs, resulting from the increase in equipment on rental. Indoor
display cost of equipment sales increased $94,000 or 2.5%, due to additional
volume. The indoor display general and administrative expenses increased
$171,000 or 3.1%.
Outdoor operating income decreased $1.9 million or 83.6%. The cost of outdoor
displays represented 77.8% of related revenues in 2000 and 73.5% in 1999. The
sports segment of the outdoor division has become increasingly competitive. As
a result, the Company expects to continue to experience erosion in the operating
income of the sports sector of the outdoor division, as it continues to attempt
to increase its market share, although 2001 did not experience an erosion.
Outdoor display cost of equipment sales increased $1.0 million or 6.0%,
principally due to higher content of raw materials due to the new LED
technology, installation costs, and higher costs related to the new 55,000
square foot manufacturing facility in Logan, UT. In the fourth quarter, the
Company wrote off approximately $145,000 of net book value of certain older
manufacturing equipment held for sale at its former Logan, UT manufacturing
facility after recent marketplace activity provided indication that the
Company's carrying value was in excess of net realizable value; due mainly to
the installation of state-of-the-art equipment in the new Logan, UT factory.
Also during the fourth quarter of 2000, the Company reduced its gross profit by
$100,000 relating to an outdoor sports display sales contract. Outdoor display
cost of equipment rentals and maintenance decreased $268,000 or 4.0%, primarily
due to reduced field service costs mainly as a result of the expected decline in
the outdoor rental and maintenance bases previously acquired. The outdoor
display general and administrative expenses increased $365,000 or 6.0%,
primarily due to expanded sales and marketing efforts related to the sports
segment and the operating costs related to the new manufacturing facility in
Logan, UT. As a result of declining operating income in the outdoor display
segment, management had evaluated the carrying value of the assets, including
goodwill, and concluded that no adjustment to carrying value was necessary at
that time. Such adjustments may need to be made in the future if circumstances
indicate that the carrying value of such assets may not be recoverable, no
adjustment was necessary in 2001.
The entertainment and real estate operating income decreased $610,000 or
59.4%. This decrease was due to the fourth quarter charge for the write-off of
the $1.3 million intangible theatre assets and equipment at its older Lake
Dillon, CO theatre. The charge relating to the theatre was taken as a result of
continuing disappointing box office receipts resulting in part from the
Company's opening of a modern six-plex theatre in the same community in 1999.
The Company recorded this impairment after analyzing its latest plans and
projections of cash flows for this theatre, and determined that a charge was
appropriate at that time. Previously, management had been working various
strategies to improve operating results that were not having the desired effect,
resulting in the need to record an impairment at that time. Under the terms of
its lease, the Company is obligated to operate this theatre until 2014. Before
the
11
write-off, the entertainment and real estate division would have had an
operating income of $1.7 million, an increase of $696,000 or 67.8%. The cost of
entertainment and real estate represented 93.5% (which included the write-off)
of related revenues for the year ended December 31, 2000 and 80.6% in 1999. The
cost of entertainment and real estate increased $3.3 million or 50.8% in 2000
(before the write-off), mainly as a result of the expansion of theatre
operations and theatre start-up expenses for new theatre locations. The
entertainment and real estate general and administrative expenses decreased
slightly.
Corporate general and administrative expenses increased $472,000 or 7.9%,
primarily due to a $420,000 negative impact of the effect of foreign currency
exchange rates in 2000 versus a $344,000 positive impact in 1999 (a net change
of $764,000). Before the negative impact of the foreign currency exchange
losses and the 1999 special litigation charge of $408,000 on a retaliatory
discharge claim (see Note 15), corporate general and administrative expenses
would have increased slightly.
Net interest expense increased $1.9 million, which is primarily attributable
to an increase in long-term debt due to the expansion of theatre operations and
the new outdoor display manufacturing facility in Logan, UT, and an increase in
interest rates in 2000 vs. 1999. Other income for 2000 relates largely to the
gain on the sale of real estate holdings in Torrance, CA and in Mississauga,
Canada. The 1999 other income related primarily to the gain on the repurchase
of $1,135,000 par value of the Company's 7 1/2% Convertible Subordinated Notes
at a discount and the earned income portion of municipal forgivable loans. The
income from joint venture relates to the equity in earnings of the theatre joint
venture, MetroLux Theatre in Loveland, CO.
The effective tax benefit rate for the year ended December 31, 2000 was 28.0%.
The benefit rate was unfavorably impacted primarily by the inability to
recognize tax benefits for losses of a foreign subsidiary. Such benefits could
be realized in the future to the extent the foreign subsidiary shows profits.
For the year ended December 31, 1999, the effective tax rate of 36.0% was
primarily as a result of favorable impacts created by the utilization of foreign
carryforward tax benefits which had previously been fully reserved.
Accounting Standards
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (SFAS 133), effective January 1, 2001. The standard requires
companies to designate hedging instruments as either fair value, cash flow, or
hedges of a net investment in a foreign operation. All derivatives are to be
recognized as either assets or liabilities and measured at fair value. Gains or
losses resulting from changes in the values of those derivatives are accounted
for depending upon its designation and whether it qualifies for hedge
accounting. The Company has limited involvement with derivative financial
instruments and does not use them for trading purposes; they are only used to
manage and fix well-defined interest rate risks. The Company has two interest
rate swap agreements effective through August 2002, having a notional value of
$5.5 million to reduce exposure to interest fluctuations on its bank term loans,
which are classified as cash flow hedges. The adoption of SFAS 133 resulted in
the cumulative effect of an accounting change, net of tax, of approximately
$15,000 in other comprehensive income (loss). At December 31, 2001, the
mark-to-market loss for the interest rate swap hedge included in other
comprehensive income totaled $96,000 (net of tax).
In June 2001, the Financial Accounting Standards Board (FASB) issued
Statements of Financial Accounting Standards No. 141, "Business Combinations",
effective July 1, 2001, and No. 142, "Goodwill and Other Intangible Assets"
(SFAS 142), effective for the fiscal years beginning after December 15, 2001.
Under SFAS 142, goodwill and intangible assets deemed to have indefinite lives
will no longer be amortized but will be subject to annual impairment tests in
accordance with the statements. Other intangible assets will continue to be
amortized over their useful lives.
The Company will apply the new rules of accounting for goodwill and other
intangible assets beginning in the first quarter of 2002. On an annual basis,
the Company's current amortization of goodwill approximates $97,000. The
Company will perform the required impairment tests related to goodwill and
indefinite-lived intangible assets recorded on January 1, 2002. The Company has
not yet determined what the effect of these tests will be on its earnings and
financial position, if any. Any transitional impairment loss would be
recognized as a cumulative effect of a change in accounting principle in the
Consolidated Statements of Operations.
In August 2001, the FASB issued Statement of Financial Accounting Standards
No. 143, "Accounting for Asset Retirement Obligations" (SFAS 143), effective
for financial statements issued after June 15, 2002. SFAS 143 addresses the
financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated retirement costs.
The Company does not believe adopting SFAS 143 will have any effect on its
financial statements.
In August 2001, the FASB issued Statement of Financial Accounting Standards
No. 144, "Accounting for the Impairment or Disposal of Long-lived Assets" (SFAS
144), effective for fiscal years beginning after December 15, 2001. SFAS 144
addresses the accounting and reporting for the impairment or disposal of
long-lived assets, including the disposal of a segment of business. The Company
has not yet determined what the effect of these tests will be on its earnings
and financial position, if any.
Liquidity and Capital Resources
The Company has a $15.0 million revolving credit facility available until June
2002, at which time the outstanding balance will convert into a four-year term
loan. In order to fund on-going and potential new business, the Company is
currently in discussions with lenders to arrange additional near-term working
capital availability. At December 31, 2001, $12.9 million was outstanding,
leaving $1.6 million of additional borrowing capacity under this facility after
giving effect to outstanding irrevocable letters of credit in the amount of $0.5
million. These letters of credit, which have terms of less than three months,
collateralize the Company's obligations to third parties for the purchase of
inventory. The interest rate is LIBOR plus 2.5% (4.35% at December 31, 2001).
The revolving credit facility also requires an annual facility fee on the unused
commitment of 0.375%.
The Company is currently authorized by the Board of Directors to repurchase up
to $400,000 of its Common Stock. As of December 31, 2001, a total of 31,656
shares of Common Stock at a cost of $226,000 were repurchased under this
program, although none were repurchased during 2001. As of December 31, 2001,
the Company had repurchased $1,448,000 par value of its Notes, of which $20,000
par value were purchased during 2001 at a price of $77.00, resulting in an after
tax gain of $2,000.
The Company believes that cash generated from operations together with cash
and cash equivalents on hand and the current availability under the revolving
credit facility will be sufficient to fund its anticipated near term cash
requirements, but is in discussions with lenders to arrange near-term working
capital availability in order to fund ongoing and potential new business.
The Company has two term loans under its amended bank Credit Agreement for a
total of $5.5 million of indebtedness at a rate of interest at LIBOR plus 1.75%.
The Company has two interest rate swap agreements in place, with a notional
value equal to the amount of the two term loans and with corresponding maturity
terms to reduce exposure to interest fluctuations, which are classified as cash
flow hedges. The interest rate swap agreements have the effect of converting
the interest rate on such term loans to fixed average annual rates of 7.82% and
7.88% through July 2002. The Credit Agreement requires compliance with certain
financial covenants with which the Company must comply, absent a waiver by the
bank, on a continuing basis, with which the Company is in compliance at December
31, 2001 and expects to remain in compliance.
Cash and cash equivalents increased $1.8 million in 2001 compared to an
increase of $0.3 million in 2000. The increase in 2001 is primarily
attributable to borrowings under the revolving credit facility, offset by a
decrease in receivables and deferred revenues, deposits and other. The increase
in 2000 was primarily attributable to the proceeds received from sale of fixed
assets and securities, offset by an increase in inventories and cash utilized
for investment in equipment on rental and construction of theatres. The Company
continues to experience a favorable collection cycle on its trade receivables.
12
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to interest rate risk on its long-term debt. The
Company manages its exposure to changes in interest rates by the use of variable
and fixed interest rate debt. In addition the Company has hedged its exposure
to changes in interest rates on a portion of its variable debt by entering into
interest rate swap agreements to lock in fixed interest rates for a portion of
these borrowings. The fair value of the Company's fixed rate long-term debt is
disclosed in Note 9 to the Consolidated Financial Statements. In addition, the
Company is exposed to foreign currency exchange rate risk mainly as a result of
investments in its Australian and Canadian subsidiaries. The Company does not
enter into derivatives for trading or speculative purposes.
At December 31, 2001, the Company had two interest rate swap agreements
effective through August 2002, with a notional amount of $5.5 million. The
receive rate is based on a 90 day LIBOR rate. The receive and pay rates related
to the interest rate swap were 4.35% and an average of 7.87%, respectively. The
fair value of the interest rate swap agreements were approximately ($96,000),
net of tax. Interest differentials to be paid or received because of the swap
agreements are reflected as an adjustment to interest expense over the related
debt period. A one percentage point change in interest rates would result in an
annual interest expense fluctuation of approximately $318,000.
A 10% change in the Australian and Canadian dollar relative to the U.S.
dollar would result in a currency exchange expense fluctuation of approximately
$571,000. The fair value is based on dealer quotes, considering current
exchange rates.
13
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and supplementary financial information
are set forth below:
CONSOLIDATED STATEMENTS OF OPERATIONS
In thousands, except per share data Years ended December 31 2001 2000 1999
- ------------------------------------------------------------------------------------------------------
Revenues:
Equipment rentals and maintenance $24,405 $24,026 $23,490
Equipment sales 32,680 30,876 31,273
Theatre receipts and other 13,086 11,861 8,055
------- ------- -------
Total revenues 70,171 66,763 62,818
------- ------- -------
Operating expenses:
Cost of equipment rentals and maintenance 13,528 13,636 13,366
Cost of equipment sales 22,777 21,245 20,171
Cost of theatre receipts and other 10,330 9,787 6,492
Write down of theatre assets - 1,306 -
------- ------- -------
Total operating expenses 46,635 45,974 40,029
------- ------- -------
Gross profit from operations 23,536 20,789 22,789
General and administrative expenses 17,908 19,331 18,341
------- ------- -------
5,628 1,458 4,448
Interest income 157 445 592
Interest expense (5,532) (5,980) (4,251)
Other income 412 626 258
Income from joint venture 397 353 185
------- ------- -------
Income (loss) before income taxes 1,062 (3,098) 1,232
------- ------- -------
Provision (benefit) for income taxes:
Current (68) 104 510
Deferred 621 (971) (66)
------- ------- -------
553 (867) 444
------- ------- -------
Net income (loss) $ 509 $(2,231) $ 788
======= ======= =======
Earnings (loss) per share:
Basic $ 0.40 ($1.77) $ 0.61
Diluted $ 0.40 ($1.77) $ 0.61
Average common shares outstanding:
Basic 1,261 1,261 1,286
Diluted 1,261 1,261 1,288
______________________________________________________________________________________________________
The accompanying notes are an integral part of these consolidated financial statements.
14
CONSOLIDATED BALANCE SHEETS
In thousands, except share data December 31 2001 2000
- ---------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 5,699 $ 3,920
Available-for-sale securities 530 495
Receivables, less allowance of $465 and $311 9,503 8,010
Unbilled receivables 830 1,158
Inventories 6,837 7,781
Prepaids and other 762 754
-------- --------
Total current assets 24,161 22,118
-------- --------
Equipment on rental 86,147 80,725
Less accumulated depreciation 39,328 34,787
-------- --------
46,819 45,938
-------- --------
Property, plant and equipment 47,944 48,528
Less accumulated depreciation and amortization 10,729 9,248
-------- --------
37,215 39,280
Other assets 5,702 5,679
-------- --------
$113,897 $113,015
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 4,614 $ 4,214
Accrued liabilities 6,230 6,079
Current portion of long-term debt 3,331 2,562
-------- --------
Total current liabilities 14,175 12,855
-------- --------
Long-term debt:
7 1/2% convertible subordinated notes due 2006 30,177 30,197
9 1/2% subordinated debentures due 2012 1,057 1,057
Notes payable 38,016 37,298
-------- --------
69,250 68,552
Deferred revenue, deposits and other 2,930 4,248
Deferred income taxes 3,974 3,664
-------- --------
Commitments and contingencies
Stockholders' equity:
Capital stock
Common - $1 par value - 5,500,000 shares authorized
2,452,900 shares issued in 2001 and 2,445,562 in 2000 2,453 2,445
Class B - $1 par value - 1,000,000 shares authorized
287,505 shares issued in 2001 and 294,843 in 2000 287 295
Additional paid-in-capital 13,901 13,901
Retained earnings 19,360 19,029
Accumulated other comprehensive loss (596) (137)
-------- --------
35,405 35,533
Less treasury stock - at cost - 1,479,688 shares in 2001 and 2000
(excludes additional 287,505 shares held in 2001 and
294,843 in 2000 for conversion of Class B stock) 11,837 11,837
-------- --------
Total stockholders' equity 23,568 23,696
-------- --------
$113,897 $113,015
======== ========
___________________________________________________________________________________________________
The accompanying notes are an integral part of these consolidated financial statements.
15
CONSOLIDATED STATEMENTS OF CASH FLOWS
In thousands Years ended December 31 2001 2000 1999
- ------------------------------------------------------------------------------------------------------
Cash flows from operating activities
Net income (loss) $ 509 $(2,231) $ 788
Adjustment to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 10,067 9,532 8,682
Income from joint venture (397) (353) (185)
Deferred income taxes 620 (971) (126)
Gain on sale of fixed assets (306) (585) -
Loss on sale of securities - 54 3
Gain on repurchase of Company's
7 1/2% convertible subordinated notes (5) (49) (108)
Write-off of non-recoverable assets - 1,451 -
Changes in operating assets and liabilities:
Receivables (1,667) 10 (1,891)
Inventories 944 (1,635) (765)
Prepaids and other assets (28) 339 (405)
Accounts payable and accruals (255) 564 2,257
Deferred revenue, deposits and other (1,298) 433 (539)
------- ------- -------
Net cash provided by operating activities 8,184 6,559 7,711
------- ------- -------
Cash flows from investing activities
Equipment manufactured for rental (7,978) (8,708) (7,373)
Purchases of property, plant and equipment (878) (9,607) (12,992)
Usage of (increase in) construction funds - 3,290 (3,290)
Payments for acquisitions (net) - - (1,163)
Proceeds from joint venture 734 227 94
Proceeds from sale of securities - 3,182 1,054
Proceeds from sale of fixed assets 423 2,659 -
------- ------- -------
Net cash used in investing activities (7,699) (8,957) (23,670)
------- ------- -------
Cash flows from financing activities
Proceeds from long-term debt 4,130 5,430 20,671
Repayment of long-term debt (2,643) (2,356) (984)
Repurchase of Company's
7 1/2% convertible subordinated notes (15) (233) (974)
Purchase of treasury stock - - (226)
Cash dividends (178) (174) (175)
------- ------- -------
Net cash provided by financing activities 1,294 2,667 18,312
------- ------- -------
Net increase in cash and cash equivalents 1,779 269 2,353
Cash and cash equivalents at beginning of year 3,920 3,651 1,298
------- ------- -------
Cash and cash equivalents at end of year $ 5,699 $3,920 $ 3,651
======= ======= =======
- ------------------------------------------------------------------------------------------------------
Interest paid $ 5,241 $5,657 $ 4,185
Interest received 187 558 617
Income taxes paid (refunded) 411 (14) 1,003
- ------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
16
Consolidated Statements of Stockholders' Equity
Accumulated
Additional Other
In thousands, except share data Common Stock Class B Paid-in Treasury Retained Comprehensive
For the three years ended December 31, 2001 Shares Amount Shares Amount Capital Stock Earnings Income (Loss)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance January 1, 1999 2,443,119 $2,443 297,286 $297 $13,901 $(11,611) $20,821 $ 0
Net income --- --- --- --- --- --- 788 ---
Cash dividends --- --- --- --- --- --- (175) ---
Other comprehensive income (loss), net of tax:
Unrealized foreign currency translation --- --- --- --- --- --- --- (142)
Unrealized holding loss --- --- --- --- --- --- --- (83)
Common stock acquired (31,656 shares) --- --- --- --- --- (226) --- ---
Class B conversion to common stock 1,281 1 (1,281) (1) --- --- --- ---
-----------------------------------------------------------------------------------
Balance December 31, 1999 2,444,400 2,444 296,005 296 13,901 (11,837) 21,434 (225)
Net income (loss) --- --- --- --- --- --- (2,231) ---
Cash dividends --- --- --- --- --- --- (174) ---
Other comprehensive income (loss), net of tax:
Unrealized foreign currency translation --- --- --- --- --- --- --- 20
Unrealized holding gain --- --- --- --- --- --- --- 68
Class B conversion to common stock 1,162 1 (1,162) (1) --- --- --- ---
-----------------------------------------------------------------------------------
Balance December 31, 2000 2,445,562 2,445 294,843 295 13,901 (11,837) 19,029 (137)
Net income --- --- --- --- --- --- 509 ---
Cash dividends --- --- --- --- --- --- (178) ---
Other comprehensive income (loss), net of tax:
Unrealized foreign currency translation --- --- --- --- --- --- --- 19
Unrealized holding loss --- --- --- --- --- --- --- (9)
Minimum pension liability adjustment --- --- --- --- --- --- --- (373)
Unrealized derivative loss --- --- --- --- --- --- --- (96)
Class B conversion to common stock 7,338 8 (7,338) (8) --- --- --- ---
-----------------------------------------------------------------------------------
Balance December 31, 2001 2,452,900 $2,453 287,505 $287 $13,901 $(11,837) $19,360 $(596)
- -----------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Consolidated Statements of Comprehensive Income
In thousands Years ended December 31 2001 2000 1999
- ------------------------------------------------------------------------------
Net income (loss) $ 509 $(2,231) $788
------------------------
Other comprehensive income (loss), net of tax:
Unrealized foreign currency translation 19 20 (142)
Unrealized holding gain (loss) on securities (9) 68 (83)
Minimum pension liability adjustment (373) - -
Unrealized derivative loss (96) - -
------------------------
Total other comprehensive income (loss) (459) 88 (225)
------------------------
Comprehensive income (loss) $ 50 $(2,143) $563
- -----------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
17
Notes To Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Principles of consolidation: The consolidated financial statements include the
accounts of Trans-Lux Corporation and its majority-owned subsidiaries (the
Company). The investment in a 50% owned joint venture partnership, MetroLux
Theatres, is reflected under the equity method and is recorded as a separate
line in the Consolidated Statements of Operations.
Use of estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Estimates and assumptions are reviewed periodically, and the effects of
revisions are reflected in the financial statements in the period in which they
are determined to be necessary. Estimates are used when accounting for such
items as costs of long-term sales contracts, allowance for doubtful accounts,
inventory reserves, depreciation and amortization, intangible assets, warranty
obligation, income taxes, contingencies and litigation.
Cash equivalents: The Company considers all highly liquid investments
with a maturity of three months or less, when purchased, to be cash equivalents.
Available-for-sale securities: Available-for-sale securities consist of
common and preferred stock holdings and are stated at fair value.
Accounts receivable: Receivables are carried at net realizable value.
Reserves for doubtful accounts are provided based on historical experience and
current trends. The Company evaluates the adequacy of these reserves regularly.
Inventories: Inventories are stated at the lower of cost (first-in,
first-out method) or market value. Reserves for slow moving and obsolete
inventories are provided based on historical experience and demand for servicing
of the displays. The Company evaluates the adequacy of these reserves
regularly.
Equipment on rental and property, plant and equipment: Equipment on
rental and property, plant and equipment are stated at cost and are being
depreciated over their respective useful lives using straight line or 150%
declining balance methods. Leaseholds and improvements are amortized over the
lesser of the useful lives or term of the lease. The estimated useful lives are
as follows:
- ------------------------------------------------------
Equipment on rental 5 to 15 years
Buildings and improvements 10 to 40 years
Machinery, fixtures and equipment 5 to 15 years
Leaseholds and improvements 5 to 27 years
- ------------------------------------------------------
When equipment on rental and property, plant and equipment are fully
depreciated, retired or otherwise disposed of, the cost and accumulated
depreciation are eliminated from the accounts.
Goodwill and intangibles: Goodwill and intangible assets are amortized on
a straight line basis, using the following useful lives: Goodwill over 20
years; non-compete agreements over their contractual terms of seven and ten
years; deferred financing costs over the life of the related debt; and patents
and other intangibles over 14 to 30 years.
Maintenance contracts: Purchased maintenance contracts are stated at cost
and are being amortized over their economic lives of eight to 15 years using an
accelerated method which contemplates contract expiration, fall-out, and
non-renewal.
Impairment of long-lived assets: The Company evaluates long-lived assets,
including intangible assets and goodwill, for possible impairment when events or
changes in circumstances indicate that the carrying amount of such assets may
not be recoverable. In making such an evaluation for assets to be held and
used, the Company estimates the future cash flows expected to result from the
use of the asset and its eventual disposition to measure whether the asset is
recoverable. For assets held for sale, possible impairment is measured by
comparing the carrying amount of the asset to net realizable value.
Revenue recognition: Rental revenue from rental of equipment and revenue
from maintenance contracts are recognized as they accrue during the term of the
respective agreements. The Company recognizes revenues on long-term equipment
sales contracts, which require more than three months to complete, using the
percentage of completion method. The Company records unbilled receivables
representing amounts due under these long-term equipment sales contracts which
have not been billed to the customer. Income is recognized based on the
percentage of incurred costs to the estimated total costs for each contract.
The determination of the estimated total costs are susceptible to significant
change on these sales contracts. Revenues on equipment sales, other than
long-term equipment sales contracts, are recognized upon shipment. Theatre
receipts and other revenues are recognized at time service is provided.
Taxes on income: The Company computes income taxes using the asset and
liability method, under which deferred income taxes are provided for the
temporary differences between the financial reporting basis and the tax basis of
the assets and liabilities.
Foreign currency: The functional currency of the Company's non-U.S.
business operations is the applicable local currency. The assets and
liabilities of such operations are translated into U.S. dollars at the year-
end rate of exchange, and the income and cash flow statements are converted at
the average annual rate of exchange. The resulting translation adjustment is
recorded as a separate component of stockholders' equity. Gains and losses
related to the settling of transactions not denominated in the functional
currency are recorded as a component of general and administrative expenses in
the Consolidated Statements of Operations.
Derivative financial instruments: The Company has limited involvement
with derivative financial instruments and does not use them for trading
purposes; they are only used to manage and fix well-defined interest rate risks.
From time to time the Company enters into interest rate swap agreements to
reduce exposure to interest fluctuations. The net gain or loss from the
exchange of interest rate payments is included in interest expense in the
Consolidated Statements of Operations and in interest paid in the Consolidated
Statements of Cash Flows.
Accounting pronouncements: The Company adopted the provisions of
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133), effective January 1, 2001. The
standard requires companies to designate hedging instruments as either fair
value, cash flow, or hedges of a net investment in a foreign operation. All
derivatives are to be recognized as either assets or liabilities and measured at
fair value. Gains or losses resulting from changes in the values of those
derivatives are accounted for depending upon its designation and whether it
qualifies for hedge accounting. The adoption of SFAS 133 resulted in the
cumulative effect of an accounting change, net of tax, of approximately $15,000
in other comprehensive income (loss).
In June 2001, the Financial Accounting Standards Board (FASB) issued
Statements of Financial Accounting Standards No. 141, "Business Combinations",
effective July 1, 2001, and No. 142, "Goodwill and Other Intangible Assets"
(SFAS 142), effective for fiscal years beginning after December 15, 2001. Under
18
SFAS 142, goodwill and intangible assets deemed to have indefinite lives will no
longer be amortized but will be subject to annual impairment tests in accordance
with the statements. Other intangible assets will continue to be amortized over
their useful lives.
The Company will apply the new rules of accounting for goodwill and other
intangible assets beginning in the first quarter 2002. On an annual basis,
the Company's current amortization of goodwill approximates $97,000. The
Company will perform the required impairment tests related to goodwill and
indefinite-lived intangible assets recorded on January 1, 2002. The Company has
not yet determined what the effect of these tests will be on its earnings and
financial position, if any. Any transitional impairment loss would be
recognized as a cumulative effect of a change in accounting principle in the
Consolidated Statements of Operations.
In August 2001, the FASB issued Statement of Financial Accounting Standards
No. 143, "Accounting for Asset Retirement Obligations" (SFAS 143), effective
for financial statements issued after June 15, 2002. SFAS 143 addresses the
financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated retirement costs.
The Company does not believe adopting SFAS 143 will have any effect on its
financial statements.
In August 2001, the FASB issued Statement of Financial Accounting Standards
No. 144, "Accounting for the Impairment or Disposal of Long-lived Assets" (SFAS
144), effective for fiscal years beginning after December 15, 2001. SFAS 144
addresses the accounting and reporting for the impairment or disposal of
long-lived assets, including the disposal of a segment of business. The Company
has not yet determined what the effect of these tests will be on its earnings
and financial position, if any.
Reclassifications: Certain reclassifications of prior year's amounts have
been made to conform to the current year's presentation.
2. Available-for-Sale Securities
Available-for-sale securities are carried at estimated fair values and the
unrealized holding gains and losses are excluded from earnings and are reported
net of income taxes in a separate component of stockholders' equity until
realized. Adjustments of $21,000 and $36,000 (before reclassification
adjustment for realized gains and losses) were made to equity to reflect the net
unrealized losses on available-for-sale securities as of December 31, 2001 and
2000, respectively. The Company realized losses on the sales of
available-for-sale securities of $54,000 in 2000.
Available-for-sale securities consist of the following:
2001 2000
------------------------------------------
Fair Unrealized Fair Unrealized
In thousands Value Losses Value Losses
- --------------------------------------------------------------------
Equity securities $530 $174 $495 $212
- --------------------------------------------------------------------
3. Inventories
Inventories consist of the following:
In thousands 2001 2000
- --------------------------------------------------------
Raw materials and spare parts $3,785 $4,837
Work-in-progress 1,717 1,450
Finished goods 1,335 1,494
------ ------
$6,837 $7,781
- --------------------------------------------------------
4. Property, Plant and Equipment
Property, plant and equipment consist of the following:
In thousands 2001 2000
- --------------------------------------------------------------
Land, buildings and improvements $36,140 $36,717
Machinery, fixtures and equipment 10,037 9,918
Leaseholds and improvements 1,767 1,893
------- -------
$47,944 $48,528
- --------------------------------------------------------------
Land, buildings and equipment having a net book value of $29.6 million and $30.0
million at December 31, 2001 and 2000, respectively, were pledged as collateral
under mortgage agreements.
5. Other Assets
Other assets consist of the following:
In thousands 2001 2000
- ------------------------------------------------------------------------------
Deferred financing costs, net of
accumulated amortization of $1,399-2001
and $1,079-2000 $1,412 $1,658
Goodwill and noncompete agreements,
net of accumulated amortization of $551-
2001 and $945-2000 1,256 1,362
Investment in joint venture 1,065 899
Prepaids 838 492
Maintenance contracts, net of accumulated
amortization of $2,220-2001 and $2,108-2000 406 517
Patents and other intangibles, net of
accumulated amortization of $463-2001
and $432-2000 75 106
Deposits and other 650 645
------ ------
$5,702 $5,679
- ------------------------------------------------------------------------------
Deferred financing costs relate to issuance of the 7 1/2% convertible
subordinated notes, the 9 1/2% subordinated debentures, and other financing
agreements.
Goodwill and noncompete agreements relate to the acquisitions of two
separate outdoor businesses.
Maintenance contracts represent the present value of acquired agreements
to service outdoor display equipment.
6. Write-Off of Assets
During the fourth quarter of 2000, the Company recorded an impairment charge of
$1,306,000 relating to an intangible theatre asset and equipment at its older
Lake Dillon, Colorado, theatre, and $145,000 for certain older outdoor
manufacturing equipment. The charge relating to the theatre was taken as a
result of continuing disappointing box office receipts resulting in part from
the Company's opening of a modern six-plex theatre in the same community in
1999. The Company recorded this impairment after analyzing its latest plans and
projections of cash flows for this theatre, and determined that a charge was
appropriate at that time. Previously, management had been working various
strategies to improve operating results that were not having the desired
effect, resulting in the need to record an impairment at that time. Under the
terms of its lease, the Company is obligated to operate this theatre until 2014.
The charge for the outdoor manufacturing equipment relates to assets held for
sale at its former Logan, Utah manufacturing facility after recent marketplace
activity provided indication that the Company's carrying value was in excess of
net realizable value. During the third quarter 2001, this facility was sold,
and a $56,000 loss was recorded.
19
7. Taxes on Income
The components of income tax expense (benefit) are as follows:
In thousands 2001 2000 1999
- -----------------------------------------------------------------------
Current:
Federal $(413) $(320) $ 277
State and local 27 (23) 64
Foreign 318 447 169
----- ----- -----
(68) 104 510
Deferred:
Federal 605 (601) (157)
State and local 16 (313) 131
Foreign - (57) (40)
----- ----- -----
621 (971) (66)
----- ----- -----
Total income tax expense (benefit) $ 553 $(867) $ 444
- -----------------------------------------------------------------------
Income taxes provided (benefit) differed from the expected federal statutory
rate of 34% as follows:
2001 2000 1999
- ----------------------------------------------------------------------------
Statutory federal income tax (benefit) rate 34.0% (34.0%) 34.0%
State income taxes, net of federal benefit 2.7 (7.2) 10.4
Foreign operating losses (income) not
providing current tax benefit (expense) 2.9 5.4 (12.3)
Foreign income taxed at different rates 8.0 2.7 (0.5)
Income tax credits 1.4 3.9 -
Other 3.0 1.2 4.4
----- ----- -----
Effective income tax rate (benefit) 52.0% (28.0%) 36.0%
- ----------------------------------------------------------------------------
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax assets and liabilities are as follows:
In thousands 2001 2000
- ----------------------------------------------------------------
Deferred tax asset:
Tax credit carryforwards $ 1,988 $ 2,276
Operating loss carryforwards 4,392 3,687
Net pension cost 475 78
Bad debts 159 77
Litigation 86 201
Other 629 662
Valuation allowance (304) (320)
------- -------
7,425 6,661
Deferred tax liability:
Depreciation 10,722 9,675
Gain on purchase of
Company's 9% debentures 439 439
Other 238 211
------- -------
11,399 10,325
------- -------
Net deferred tax liability $ 3,974 $ 3,664
- ----------------------------------------------------------------
Tax credit carryforwards primarily relate to federal alternative minimum taxes
of $1.7 million paid by the Company which may be carried forward indefinitely.
Operating tax loss carryforwards primarily relate to U.S. federal net operating
loss carryforwards of approximately $10.5 million, which begin to expire in 2019
and Australian net operating loss carryforwards of approximately $0.2 million
which begin to expire in 2007.
A valuation allowance has been established for the amount of deferred tax
assets related to Australian and state net operating loss carryforwards and
foreign tax credits, which management estimates will more likely than not expire
unused.
8. Accrued Liabilities
Accrued liabilities consist of the following:
In thousands 2001 2000
- --------------------------------------------------------------------
Compensation and employee benefits $1,712 $1,213
Pension liability 1,207 214
Interest payable 704 643
Taxes payable 222 1,210
Other 2,385 2,799
------ ------
$6,230 $6,079
- --------------------------------------------------------------------
9. Long-Term Debt
Long-term debt consists of the following:
In thousands 2001 2000
- -------------------------------------------------------------------------------
7 1/2% convertible subordinated notes due 2006 $30,177 $30,197
9 1/2% subordinated debentures due 2012 1,057 1,057
Term loans - bank, secured due in quarterly installments
through 2005 5,479 7,095
Revolving credit facility - bank, secured 12,900 9,050
Real estate mortgages - secured, due in monthly
installments through 2021 18,200 18,561
Loan payable - IRB, due in annual installments through
2014 4,390 4,615
Loan payable - CEBA, secured, due in monthly
installments through 2006 at 0.0% 245 295
Loan payable - CDA, secured due in monthly installments
through 2002 at 5.0% 54 135
Capital lease obligation - secured, due in monthly
installments through 2004 at 5.3% 79 109
------- -------
72,581 71,114
Less portion due within one year 3,331 2,562
------- -------
Long-term debt $69,250 $68,552
- -------------------------------------------------------------------------------
Payments of long-term debt due for the next five years are:
In thousands 2002 2003 2004 2005 2006
- ---------------------------------------------------------------
$3,331 $4,960 $5,008 $7,617 $4,101
- ---------------------------------------------------------------
The 7 1/2% convertible subordinated notes (the "Notes") are due in 2006.
Interest is payable semiannually. The Notes are convertible into Common Stock
of the Company at a conversion price of $14.013 per share. The Notes may be
redeemed by the Company, in whole or in part, at declining premiums. The
related Indenture agreement requires compliance with certain financial
covenants, which include a limitation on the Company's ability to incur
indebtedness of five times EBITDA plus $5.0 million. During 2001, the Company
repurchased $20,000 face value of its Notes at $77.00, and recognized $2,000 of
income (net of tax).
The 9 1/2% subordinated debentures (the "Debentures") are due in annual
sinking fund payments of $105,700 beginning in 2009, with the remainder due in
2012. Interest is payable semiannually. The Debentures may be redeemed by the
Company, in whole or in part, at declining premiums.
The Company has a bank Credit Agreement, which provides for both term
loans and a $15 million revolving credit facility, including letters of credit,
which are available until June 2002, and requires an annual facility fee on the
unused commitment of 0.375%. The Company has provided the bank with a security
interest in substantially all assets of its display business. At December 31,
2001, under the term loans, $4.7 million and $0.8 million were outstanding.
Under the revolving credit facility, $12.9 million was outstanding leaving $1.6
million in borrowing capacity under this facility, and has outstanding
irrevocable letters of credit in the amount of $0.5 million. These letters of
credit, which have terms of less than three months, collateralize the Company's
obligations to third parties for the purchase of inventory. The fair value of
these letters of credit approximates contract values based on the nature of the
20
fee arrangements with the issuing bank. The Credit Agreement requires
compliance with certain financial covenants which, at December 31, 2001,
included a defined debt service coverage ratio of 1.40 to 1.0, a defined debt to
cash flow ratio of 3.75 to 1.0 and an annual limitation of $750,000 on cash
dividends. At December 31, 2001, the Company was in compliance with such
financial covenants. The term loans bear interest at LIBOR plus 1.75%. At
December 31, 2001, there were two interest rate swap agreements in place, with a
notional value equal to the amount of the two term loans and with corresponding
maturity terms to reduce exposure to interest fluctuations, which are classified
as cash flow hedges. The interest rate swap agreements have the effect of
converting the interest rate on such term loans to a fixed average annual rate
of 7.87% through July 2002. At January 1, 2001, the Company adopted the
provisions of SFAS 133 and recorded a cumulative effect of an accounting change,
net of tax, of approximately $15,000 in other comprehensive income (loss). At
December 31, 2001, the cost to the Company to terminate the interest rate swap
agreements was approximately $96,000, net of tax. Payments on the $0.8 million
term loan are due in even quarterly installments through July 2002, and payments
on the $4.7 million term loan are due in even quarterly installments through
July 2005 and a final maturity of $2.8 million in August 2005.
Under the Credit Agreement, the outstanding balance on the revolving credit
facility will convert into a four-year term loan. Upon conversion to a term
loan, the revolving credit borrowings would be repayable in even quarterly
installments until maturity. Interest is computed at LIBOR plus 2.5% (4.35% at
December 31, 2001).
The Company has mortgages on certain of its facilities, which are payable in
monthly installments, the last of which extends to 2021. Depending upon the
mortgage, the interest rate is either fixed, floating or adjustable. At
December 31, 2001, such interest rates ranged from 3.89% to 8.91%.
On June 3, 1999, as part of a loan agreement entered into with the City
of Logan, Cache County, Utah, the Company financed $4.8 million of a combination
of Tax-Exempt and Taxable Revenue Bonds ("Bonds") for the construction of its
new 55,000 square foot outdoor display manufacturing facility in Logan, Utah.
The Bonds are secured by an irrevocable letter of credit issued by a bank. At
the direction of the Company, the Bonds may be redeemed, in whole or in part,
prior to the maturity date. The Bonds were issued with a variable interest rate
based upon a Weekly Rate (as determined by a Remarketing Agent), which is the
minimum rate necessary for the Remarketing Agent to sell the Bonds on the
effective date of such Weekly Rate at a price equal to 100% of the Bonds'
principal amount without regard to accrued interest. The Company may, from time
to time, change the method of determining the interest rate to a daily, weekly,
commercial paper or long-term interest rate. At December 31, 2001, the interest
rates on the Bonds were 1.80% and 2.10%, respectively, plus a 1.25% letter of
credit fee.
During 2001, the Company incurred interest costs of $5.5 million.
At December 31, 2001, the fair value of the Notes and the Debentures was $25.8
million and $1.0 million, respectively. The fair value of the remaining
long-term debt approximates the carrying value.
10. Stockholders' Equity
During 2001, the Board of Directors declared four quarterly cash dividends of
$0.035 per share on the Company's Common Stock and $0.0315 per share on the
Company's Class B Stock, which were paid in April, July and October 2001 and
January 2002. Each share of Class B Stock is convertible at any time into one
share of Common Stock and has ten votes per share, as compared to Common Stock
which has one vote per share but receives a higher dividend.
The Company has 3.0 million shares of authorized and unissued capital
stock designated as Class A Stock, $1.00 par value. Such shares would have no
voting rights except as required by law and would receive a 10% higher dividend
than the Common Stock. The Company also has 0.5 million shares of authorized
and unissued capital stock designated as Preferred Stock, $1.00 par value.
During 1999, the Board of Directors authorized the repurchase, from time
to time, of up to $400,000 in shares of the Company's Common Stock. As of
December 31, 2001, under this program, the Company had purchased 31,656 shares
at a cost of $226,000.
The stockholders previously approved an increase in the authorized shares
of Common Stock to 11.0 million and Class A Stock to 6.0 million. A Certificate
of Amendment increasing the authorized shares will be filed when deemed
necessary.
Shares of Common Stock reserved for future issuance in connection with
convertible securities and stock option plans were 2.3 million at both December
31, 2001 and 2000.
11. Engineering Development
Engineering development expense was $297,000, $326,000 and $535,000 for 2001,
2000 and 1999, respectively.
12. Pension Plan
All eligible salaried employees of Trans-Lux Corporation and certain of its
subsidiaries are covered by a non-contributory defined benefit pension plan.
Pension benefits vest after five years of service and are based on years of
service and final average salary. The Company's general funding policy is to
contribute at least the required minimum amounts sufficient to satisfy
regulatory funding standards, but not more than the maximum tax-deductible
amount. At December 31, 2001, plan assets consist principally of insurance
company funds, mutual funds and $203,000 in the Company's 9 1/2% subordinated
debentures.
The funded status of the plan as of December 31, 2001 and 2000 is as follows:
In thousands 2001 2000
- -------------------------------------------------------------------------------
Change in projected benefit obligation
Projected benefit obligation at beginning of year $ 7,597 $ 6,438
Service cost 568 568
Interest cost 560 493
Actuarial loss 46 340
Amendments to plan 167 -
Benefits paid (77) (242)
------ ------
Projected benefit obligation at end of year $ 8,861 $ 7,597
------ ------
Change in plan assets
Fair value of plan assets at beginning of year $ 5,625 $ 5,988
Actual return on plan assets (12) (121)
Company contributions 311 -
Benefits paid (77) (242)
------ ------
Fair value of plan assets at end of year $ 5,847 $ 5,625
------ ------
Funded status
Funded status (underfunded) $(3,014) $(1,972)
Unrecognized net actuarial loss 2,253 1,747
Unrecognized prior service cost 175 11
------ ------
Net pension benefit liability $ (586) $ (214)
------ ------
Net pension benefit liability
Pension benefit liability $(1,382) $ (214)
Unrecognized prior service cost 175 -
Accumulated other comprehensive loss 621 -
------ ------
Net pension benefit liability $ (586) $ (214)
------ ------
Weighted-average assumptions as of December 31
Discount rate 7.25% 7.50%
Expected return on plan assets 9.50% 9.50%
Rate of compensation increase 3.75% 4.25%
- --------------------------------------------------------------------------------
21
The following items are components of the net periodic pension cost for the
three years ended December 31, 2001:
In thousands 2001 2000 1999
- --------------------------------------------------------------------------
Service cost $ 568 $ 568 $ 565
Interest cost 560 493 446
Expected return on plan assets (537) (561) (536)
Amortization of prior service cost 2 2 2
Amortization of net actuarial loss 90 8 88
--- --- ---
Net periodic pension cost - funded plan $ 683 $ 510 $ 565
- --------------------------------------------------------------------------
In addition, the Company provides unfunded supplemental retirement benefits for
the Chief Executive Officer. The Company recognized a benefit of $127,000 for
2001 due to amendments to the pension plan and accrued $111,000 and $97,000 for
2000 and 1999, respectively, for such benefits. The total liability accrued was
$456,000, $583,000 and $472,000 at December 31, 2001, 2000 and 1999,
respectively.
The Company does not offer any postretirement benefits other than the
pension and the supplemental retirement benefits described herein.
13. Stock Option Plans
The Company has four stock option plans. Under the 1995 Stock Option Plan and
the 1992 Stock Option Plan, 125,000 and 50,000 shares of Common Stock,
respectively, were authorized for grant to key employees. Under the Non-
Employee Director Stock Option Plan, 30,000 shares of Common Stock were
authorized for grant. During 2001, the Company adopted a Non-Statutory Stock
Option Agreement reserving 10,000 shares of Common Stock for issue to the
Chairman of the Board.
Changes in the stock option plans are as follows:
Number of Shares Weighted
---------------- Average
Authorized Granted Available Exercise Price
- -----------------------------------------------------------------------------------------
Balance January 1, 1999 152,809 85,809 67,000 $9.58
Terminated (300) (1,300) 1,000 7.71
Granted - 44,000 (44,000) 8.83
----------------------------------------------------
Balance December 31, 1999 152,509 128,509 24,000 9.35
Additional shares authorized 25,000 - 25,000 -
Terminated (2,650) (3,850) 1,200 8.16
Granted - 5,500 (5,500) 6.40
----------------------------------------------------
Balance December 31, 2000 174,859 130,159 44,700 9.26
Additional shares authorized 10,000 - 10,000 -
Terminated - (32,100) 32,100 8.86
Granted - 13,500 (13,500) 4.18
----------------------------------------------------
Balance December 31, 2001 184,859 111,559 73,300 $8.75
- -----------------------------------------------------------------------------------------
Under the 1995 and 1992 Stock Option Plans, option prices must be at least 100%
of the market value of the Common Stock at time of grant. No option may be
exercised prior to one year after date of grant. Exercise periods are for ten
years from date of grant (five years if the optionee owns more than 10% of the
voting power) and terminate at a stipulated period of time after an employee's
termination of employment. At December 31, 2001, under the 1995 Plan, options
for 58,939 shares with exercise prices ranging from $6.50 to $15.1875 per share
were outstanding, all of which were exercisable. During 2001, no options were
exercised and options for 30,600 shares expired. During 2000, options for 5,000
shares were granted at an exercise price of $6.50 per share, no options were
exercised, and options for 1,200 shares expired. During 1999, options for
42,500 shares were granted at exercise prices ranging from $8.80 to $9.00 per
share, no options were exercised, and options for 1,000 shares expired.
At December 31, 2001, under the 1992 Plan, options for 28,620 shares with
exercise prices ranging from $6.3125 to $9.6875 per share were outstanding, all
of which were exercisable. During 2001, no options were exercised, and no
options expired. During 2000, no options were exercised, and options for 2,650
shares expired. During 1999, no options were exercised, and options for 300
shares expired.
Under the Non-Employee Director Stock Option Plan, option prices must be
at least 100% of the market value of the Common Stock at time of grant. No
option may be exercised prior to one year after date of grant and the optionee
must be a director of the Company at time of exercise, except in certain cases
as permitted by the Compensation Committee. Exercise periods are for six years
from date of grant and terminate at a stipulated period of time after an
optionee ceases to be a director. At December 31, 2001, options for 14,000
shares with exercise prices ranging from $4.025 to $13.00 per share were
outstanding, 10,500 of which were exercisable. During 2001, options for 3,500
shares were granted with exercise prices ranging from $4.025 to $6.15, no
options were exercised, and options for 1,500 shares expired. During 2000,
options for 500 shares were granted at an exercise price of $5.375 per share, no
options were exercised, and no options expired. During 1999, options for 1,500
shares were granted at an exercise price of $8.00 per share, no options were
exercised, and no options expired.
Under the Non-Statutory Stock Option Agreement for the Chairman of the
Board, the option price must be at least 100% of the market value of the Common
Stock at time of grant and the exercise period is for ten years from date of
grant. At December 31, 2001, the option for 10,000 shares with an exercise
price of $4.025 was outstanding and was exercisable. During 2001, the option
for 10,000 shares was granted at an exercise price of $4.025, the option was not
exercised and did not expire.
The following tables summarize information about stock options outstanding at
December 31, 2001:
Weighted Average
Range of Number Remaining Weighted Average
Exercise Prices Outstanding Contractual Life Exercise Price
- ----------------------------------------------------------------------------
$ 4.03 - $ 6.31 17,920 6.8 $ 4.68
6.32 - 7.56 8,900 5.0 6.97
7.57 - 8.13 29,539 3.4 8.12
8.14 - 9.69 19,900 5.0 9.22
9.70 - 12.63 33,500 4.1 11.41
12.64 - 15.19 1,800 3.9 13.97
---------------------------------------------------
111,559 4.6 $ 8.75
- ----------------------------------------------------------------------------
Range of Number Weighted Average
Exercise Prices Exercisable Exercise Price
- ----------------------------------------------------------
$ 4.03 - $6.31 14,420 $ 4.69
6.32 - 7.56 8,900 6.97
7.57 - 8.13 29,539 8.12
8.14 - 9.69 19,900 9.22
9.70 - 12.63 33,500 11.41
12.64 - 15.19 1,800 13.97
-----------------------------------
108,059 $ 8.89
- ----------------------------------------------------------
The estimated fair value of options granted during 2001, 2000 and 1999 was
$1.81, $2.69 and $3.93 per share, respectively. The Company applies Accounting
Principles Board Opinion No. 25 and related Interpretations in accounting for
its stock option plans. Accordingly, no compensation cost has been recognized
for its stock option plans. Had compensation cost for the Company's stock
option plans been determined based on the fair value at option grant dates for
awards in accordance with the accounting provisions of Statement of Financial
Accounting Standards No. 123 (SFAS 123), the Company's net income (loss) and
22
earnings (loss) per share for the years ended December 31, 2001, 2000 and 1999
would have been reported as the pro forma amounts indicated below:
In thousands, except per share data 2001 2000 1999
- -------------------------------------------------------------------------------------
Net income (loss) applicable to common shareholders
As reported $ 509 $(2,231) $ 788
Pro forma 504 (2,274) 737
----------------------------
Net income (loss) per common and common equivalent share
As reported $0.40 $ (1.77) $0.61
Pro forma 0.40 (1.80) 0.56
- -------------------------------------------------------------------------------------
The fair value of options granted under the Company's stock option plans during
2001, 2000 and 1999 was estimated on dates of grant using the binomial
options-pricing model with the following weighted-average assumptions used:
dividend yield of approximately 2.72% in 2001, 2.60% in 2000 and 1.77% in 1999,
expected volatility of approximately 41% in 2001 and 37% in 2000 and 1999, risk
free interest rate of approximately 5.46% in 2001, 5.48% in 2000 and 6.48% in
1999, and expected lives of option grants of approximately four years in 2001,
2000 and 1999. The effects of applying SFAS 123 in this pro forma disclosure
are not indicative of future pro forma effects, and additional awards in future
years are anticipated.
14. Earnings per Share
The following table represents the computation of basic and diluted earnings per
common share for the three years ended December 31, 2001:
In thousands, except per share data 2001 2000 1999
- -----------------------------------------------------------------------------
Basic earnings (loss) per share
computation:
Net income (loss) $ 509 $(2,231) $ 788
------------------------------
Weighted average common
shares outstanding 1,261 1,261 1,286
------------------------------
Basic earnings (loss) per common share $ 0.40 $ (1.77) $ 0.61
------------------------------
Diluted earnings (loss) per share
computation:
Net income (loss) $ 509 $(2,231) $ 788
------------------------------
Weighted average common
shares outstanding 1,261 1,261 1,286
Assumes exercise of options reduced
by the number of shares which could
have been purchased with the proceeds
from exercise of such options (1) - - 2
------------------------------
Total weighted average shares 1,261 1,261 1,288
------------------------------
Diluted earnings (loss) per common share $ 0.40 $ (1.77) $ 0.61
- -----------------------------------------------------------------------------
(1) The 2001 and 2000 diluted earnings (loss) per common share calculation does
not include options to purchase 111,559 and 130,159 shares of common stock,
respectively, as the effect is antidilutive. The 1999 diluted earnings per
common share calculation does not include options to purchase 88,500 shares of
common stock, which were outstanding, with exercise prices ranging from $8.625
to $15.1875 per share because the exercise prices were greater than the average
market price of the common stock.
15. Commitments and Contingencies
Contingencies: The Company has employment agreements with certain executive
officers, which expire at various dates through December 2010. At December 31,
2001, the aggregate commitment for future salaries, excluding bonuses, was
approximately $4.6 million.
During 1999, the Company received $400,000 structured as forgivable loans
from the State of Iowa, City of Des Moines and Polk County, which are classified
as deferred revenue, deposits and other in the Consolidated Balance Sheets. The
loans are forgiven on a pro-rata basis when predetermined employment levels are
attained.
During 1996, the Company received a $350,000 grant from the State of
Connecticut Department of Economic Development, which is classified as deferred
revenue, deposits and other in the Consolidated Balance Sheets. This grant will
be forgiven under certain circumstances, which include attainment of
predetermined employment levels within the state and maintaining business
operations within the state for a specified period of time.
The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business. During June 1999, a jury in the state of New
Mexico awarded a former employee of the Company $15,000 in damages for lost
wages and emotional distress and $393,000 in punitive damages on a retaliatory
discharge claim. The Company denied the charges on the basis that the
termination was proper and appealed the verdict, which was affirmed. The
Company filed a certiorari petition that has been granted. Subsequent to year-
end, the Company reached a settlement with the plaintiff for an amount less than
the amount previously accrued, a portion of which is subject to insurance
recovery. In January 2000, a second former employee of the Company commenced a
retaliatory discharge action seeking compensatory and punitive damages in an
unspecified amount. The Company has denied such allegations and asserted
defenses including that the former employee resigned following her failure to
timely report to work.
Management has received certain claims by customers related to contractual
matters, which are being discussed, and believes that it has adequate provisions
for such matters.
The Company had been involved in arbitration related to the construction
of its six-plex movie theatre in Dillon, Colorado. The contractor had alleged
claims against the Company in the amount of $489,000 due under a contract. The
Company had denied any liability and has asserted claims in the amount of
$467,000 that, among other matters, the contractor failed to build the theatre
in accordance with the architectural plans. The outcome of this arbitration was
payment in the amount of $84,000 to the contractor.
Operating leases: Theatre and other premises are occupied under operating
leases that expire at varying dates through 2044. Certain of these leases
provide for the payment of real estate taxes and other occupancy costs. Future
minimum lease payments due under operating leases at December 31, 2001 are as
follows: $612,000 - 2002, $555,000 - 2003, $484,000 - 2004, $446,000 - 2005,
$347,000 - 2006, $2,348,000 - thereafter. Rent expense was $553,000, $687,000
and $601,000 for the years ended December 31, 2001, 2000 and 1999, respectively.
Commitments: The Company has a purchase commitment with one of its
suppliers to purchase a specified quantity of raw materials over the next two
years. In the event the Company does not purchase the specified quantity, a
maximum surcharge of $66,667 can be imposed by the supplier. The Company has
satisfied its minimum purchase requirement for 2001.
Guarantees: The Company has guaranteed $1.5 million (60%) of a
$2.5 million mortgage loan obtained by its joint venture, MetroLux Theatres.
During 2000, the Company entered into two sale/leaseback transactions for
theatre equipment that are classified as operating leases. The Company has
guaranteed up to a maximum of $1,285,000 if, upon default, the lessor cannot
recover the unamortized balance.
16. Business Segment Data
Operating segments are based on the Company's business components about which
separate financial information is available, and is evaluated regularly by the
Company's chief operating decision makers in deciding how to allocate resources
and in assessing performance.
The Company evaluates segment performance and allocates resources based
upon operating income. The Company's operations are managed in three reportable
business segments. The Display Division comprises two operating segments,
indoor display and outdoor display. Both design, produce, lease, sell and
service large-scale, multi-color, real-time electronic information displays.
Both operating segments are conducted on a global basis, primarily through
23
operations in the U.S. The Company also has operations in Canada and Australia.
The indoor display and outdoor display segments are differentiated primarily by
the customers they serve. The Entertainment/Real Estate Division owns a chain
of motion picture theatres in the western Mountain States, a national film
booking service and income-producing real estate properties. Segment operating
income is shown after general and administrative expenses directly associated
with the segment and includes the operating results of the joint venture
activities. Corporate general and administrative items relate to costs that are
not directly identifiable with a segment. There are no intersegment sales.
Information about the Company's operations in its three business segments for
the three years ended December 1, 2001 is as follows:
In thousands 2001 2000 1999
- -----------------------------------------------------------------------------------
Revenues:
Indoor display $ 25,449 $ 24,363 $23,419
Outdoor display 31,636 30,539 31,344
Entertainment/real estate 13,086 11,861 8,055
-----------------------------------
Total revenues $ 70,171 $ 66,763 $62,818
-----------------------------------
Operating income:
Indoor display $ 7,931 $ 7,473 $ 7,331
Outdoor display 1,563 370 2,252
Entertainment/real estate 2,534 417 1,027
-----------------------------------
Total operating income 12,028 8,260 10,610
Other income 412 626 258
Corporate general and administrative expenses (6,003) (6,449) (5,977)
Interest expense - net (5,375) (5,535) (3,659)
-----------------------------------
Income (loss) before income taxes $ 1,062 $ (3,098) $ 1,232
-----------------------------------
Assets:
Indoor display $ 43,592 $ 42,887
Outdoor display 36,529 37,683
Entertainment/real estate 26,891 27,237
----------------------
Total identifiable assets 107,012 107,807
General corporate 6,885 5,208
----------------------
Total assets $113,897 $113,015
----------------------
Depreciation and amortization:
Indoor display $ 5,643 $ 5,187 $ 4,853
Outdoor display 2,977 2,791 2,581
Entertainment/real estate 935 993 594
General corporate 512 561 654
-----------------------------------
Total depreciation and amortization $ 10,067 $ 9,532 $ 8,682
-----------------------------------
Capital expenditures:
Indoor display $ 6,502 $ 7,162 $ 5,820
Outdoor display 1,801 5,202 4,147
Entertainment/real estate 435 5,822 10,101
General corporate 118 129 297
-----------------------------------
Total capital expenditures $ 8,856 $ 18,315 $20,365
- -----------------------------------------------------------------------------------
17. Fourth Quarter Events (unaudited)
The Company recorded the following items during the quarter ended December 31,
2001: (1) a decrease to net income of $110,000 related to an increase in the
allowance for doubtful accounts, (2) an increase to net income of $159,000
related to the settlement of a legal matter (see Note 15), and (3) an increase
in the effective tax rate for the year, which had the effect of increasing the
quarterly income tax expense by approximately $50,000. During the quarter ended
December 31, 2000, the Company recorded: (1) an impairment charge of $1,044,000
(net of tax) related to an intangible theatre asset and equipment at its older
Lake Dillon, CO theatre and certain older outdoor display manufacturing
equipment, (2) a decrease to net income (loss) of $72,000 related to an outdoor
sports display contract, and (3) a reduction in the effective tax benefit rate
for the year, which had the effect of reducing the quarterly income tax benefit
by approximately $192,000.
Independent Auditors' Report
To the Board of Directors and Stockholders of Trans-Lux Corporation,
Norwalk, Connecticut:
We have audited the accompanying consolidated balance sheets of Trans-Lux
Corporation and its subsidiaries as of December 31, 2001 and 2000, and the
related consolidated statements of operations, stockholders' equity,
comprehensive income, and cash flows for each of the three years in the period
ended December 31, 2001. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. We did not audit the
2001 financial statements of MetroLux Theatres, the Company's investment in
which is accounted for by use of the equity method. The Company's equity of
$1,065,000 in MetroLux Theatres' net assets at December 31, 2001, and of
$397,000 in that company's net income for the year then ended are included in
the accompanying 2001 financial statements. The 2001 financial statements of
MetroLux Theatres were audited by other auditors whose report has been furnished
to us, and our opinion, insofar as it relates to the amounts included for such
company in the 2001 financial statements, is based solely on the report of such
other auditors.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits and the
report of the other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audit and the report of the other auditors, such
consolidated financial statements present fairly, in all material respects, the
financial position of the Company and its subsidiaries at December 31, 2001 and
2000, and the results of their operations and their cash flows for the years
then ended in conformity with accounting principles generally accepted in the
United States of America.
/s/ Deloitte & Touche LLP
Stamford, Connecticut
March 27, 2002
- --------------------------------------------------------------------------------
Safe Harbor Statement under the Private Securities Reform Act of 1995
The Company may, from time to time, provide estimates as to future performance.
These forward-looking statements will be estimates, and may or may not be
realized by the Company. The Company undertakes no duty to update such
forward-looking statements. Many factors could cause actual results to differ
from these forward-looking statements, including loss of market share through
competition, introduction of competing products by others, pressure on prices
from competition or purchasers of the Company's products, interest rate and
foreign exchange fluctuations, such as the decline in the value of the
Australian dollar, terrorist acts and war.
24
Partners
MetroLux Theatres
Norwalk, Connecticut
Independent Auditors' Report
We have audited the accompanying balance sheet of MetroLux Theatres as of
December 31, 2001 and the related statements of income, partners' equity and
cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of MetroLux Theatres as of
December 31, 2001, and the results of its operations and its cash flows for the
year then ended in conformity with accounting principles generally accepted in
the United States of America.
/s/ Kellogg & Andelson
February 18, 2002
25
METROLUX THEATRES
BALANCE SHEET
DECEMBER 31, 2001
(Dollars in thousands)
ASSETS
CURRENT ASSETS:
Cash $ 707
Concession supplies 10
Prepaid expenses and other current assets 11
-----
Total current assets 728
FIXED ASSETS, net 4,331
OTHER ASSETS:
Due from partners 1
Intangible assets, net 16
-----
Total other assets 17
-----
$5,076
=====
LIABILITIES AND PARTNERS' EQUITY
CURRENT LIABILITIES:
Film rentals payable $ 211
Accounts payable and accrued expenses 164
Current portion of long-term debt 207
-----
Total current liabilities 582
LONG-TERM DEBT, net of current portion 2,293
DEFERRED REVENUES 71
-----
Total liabilities 2,946
-----
PARTNERS' EQUITY 2,130
-----
$5,076
=====
The accompanying notes are an integral part
of the financial statements
26
METROLUX THEATRES
STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2001
(Dollars in thousands)
OPERATING REVENUES:
Theatre operations
Admissions $2,434
Concessions 1,045
Other operating revenues 59
-----
Total operating revenues 3,538
-----
OPERATING EXPENSES:
Theatre operations
Film costs and advertising 1,379
Cost of concessions 183
Other operating expenses 868
Administrative expenses 110
-----
Total operating expenses 2,540
-----
INCOME FROM OPERATIONS 998
-----
OTHER INCOME (EXPENSE):
Interest income 5
Gain on sale of assets 43
Interest expense (252)
-----
Net other (expense) (204)
-----
NET INCOME $ 794
=====
The accompanying notes are an integral part
of the financial statements
27
METROLUX THEATRES
STATEMENT OF PARTNERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2001
(Dollars in thousands)
Trans-Lux
Metro Colorado Loveland
Corporation Corporation Total
-------------- ----------- ------
PARTNERS' EQUITY, January 1, 2001 $ 816 $ 816 $1,632
PARTNERSHIP DISTRIBUTIONS (148) (148) (296)
NET INCOME 397 397 794
----- ----- -----
PARTNERS' EQUITY, December 31, 2001 $1,065 $1,065 $2,130
===== ===== =====
The accompanying notes are an integral part
of the financial statements
28
METROLUX THEATRES
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2001
(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 794
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 146
Gain on sale of fixed assets (42)
Write off of prepaid financing costs 30
Changes in assets and liabilities:
Prepaid expenses and other current assets (2)
Due from partners (162)
Film rentals payable 76
Accounts payable and accrued expenses (4)
Deferred revenue 6
---
Net cash provided by operating activities 842
---
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from sale of fixed assets 45
Acquisition of fixed assets (178)
---
Net cash (used in) investing activities (133)
---
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on note to general partner (502)
Net proceeds from issuance of long-term debt 157
Principal payment on long-term debt (129)
Partnership distributions (296)
---
Net cash (used in) financing activities (770)
---
NET CHANGE IN CASH (61)
CASH, beginning of year 768
---
CASH, end of year $ 707
===
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 251
===
Income taxes paid $ -
===
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
On December 28, 2001, the Company refinanced their long-term note with a new
bank. The amount refinanced was approximately $2,343,000 along with
approximately $16,000 of loan fees deducted out of net proceeds.
The accompanying notes are an integral part
of the financial statements
29
METROLUX THEATRES
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
MetroLux Theatres (the "Company") is a general partnership entered between
Metro Colorado Corporation, a California corporation, and Trans-Lux Loveland
Corporation, a Colorado corporation. The partnership was created for the
purpose of engaging in the business of constructing, purchasing, owning,
operating and performing all functions in relation to the operation of a
multi-screen movie theatre, ancillary real estate and other entertainment
uses in Loveland, Colorado.
Fixed Assets
------------
Fixed assets are stated at cost, net of accumulated depreciation.
Depreciation is provided utilizing straight-line and accelerated methods at
rates based upon the estimated useful lives of the various classes of
assets.
Buildings and improvements 10-39 years
Theatre equipment 10 years
Furniture and other equipment 5-10 years
Major repairs and replacements are capitalized and ordinary maintenance and
repairs are charged to operations as incurred.
Intangible Assets
-----------------
Intangible assets consist of loan fees net of accumulated amortization.
Amortization is provided utilizing straight-line method over the life of the
loan.
Income Taxes
------------
The Company is treated as a partnership for federal and state income tax
purposes. Consequently, federal and state income taxes are not payable by,
or provided for, the Company. Partners are taxed individually on their
shares of the Company's earnings. The Company's net income or loss is
allocated among the partners in accordance with their percentage of
ownership.
Revenue Recognition
-------------------
The Company recognizes revenue when tickets and concession goods are sold at
the theatres and recognizes revenue on gift certificates and group activity
when they are redeemed.
30
METROLUX THEATRES
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
------------------------------------------------------
Concentrations of Credit Risk
-----------------------------
Financial instruments which potentially subject the Company to
concentrations of credit risk consist of cash. The Company places its cash
with high credit quality financial institutions. Total amounts for the year
ended December 31, 2001 in excess of the FDIC limit amounted to
approximately $415,000.
Management Estimates
--------------------
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
2. DUE FROM PARTNERS
-----------------
As of December 31, 2001, the net advances due from the general partners were
approximately $1,000. These advances are unsecured, non-interest bearing
and not expected to be repaid within the next year.
3. FIXED ASSETS - (Dollars in thousands)
-------------------------------------
Fixed assets consist of the following for the year ended December 31, 2001:
Buildings $4,027
Tenant improvements 38
Theatre equipment 197
Land 707
-----
4,969
Less: accumulated depreciation and amortization 638
-----
$4,331
=====
Depreciation and amortization expense for the year ended December 31, 2001
was approximately $146,000.
31
METROLUX THEATRES
NOTES TO FINANCIAL STATEMENTS
4. INTANGIBLE ASSETS
-----------------
Intangible assets consist of loan fees of approximately $16,000 at December
31, 2001 that were incurred during the refinancing of the Company's
long-term debt (Note 5).
5. LONG-TERM DEBT - (Dollars in thousands)
---------------------------------------
Long-term debt consists of the following for the year ended December 31,
2001:
On December 28, 2001, the Company refinanced a $2.5 million
real estate loan with a new bank. Borrowings under the term
loan bear interest, at the bank's prime rate minus .30% fixed
(4.45% at December 31, 2001) for one year. Principal payments
under the agreement are in equal monthly installments of
approximately $26,000 of principal and interest, maturing
January 2009 with one last payment of approximately $899,000.
The loan is collateralized by the assets of the Company and
60% of the debt is guaranteed by each of the partners. $2,500
Less: current portion 207
-----
$2,293
=====
Maturities of long-term debt outstanding at December 31, 2001 are as
follows:
Year Ending
December 31,
------------
2002 $ 207
2003 213
2004 222
2005 233
2006 243
Thereafter 1,382
-----
$2,500
=====
32
METROLUX THEATRES
NOTES TO FINANCIAL STATEMENTS
6. DEFERRED REVENUES - (Dollars in thousands)
------------------------------------------
Deferred revenues at December 31, 2001 consist of gift certificates and
group activity passes that are used for concession goods and admissions at
theatres, respectively. The breakdown is as follows as of December 31,
2001:
Gift certificates $68
Group activity passes 3
--
$71
==
7. COMMITMENTS
-----------
On November 1996, the Company entered into a month to month sublease
agreement with an unrelated party for $1,500 a month. As of December 31,
2001, the Company accrued $18,000 of sublease income.
8. PENSION PLAN
------------
The Company has adopted a Tax Savings Plan covering substantially all of its
employees. Participating employees may contribute 1% to 20% (15% - 2001) of
their salary, subject to required participating percentages of 401(k)
regulations.
The Company contributes, at the discretion of management, a matching
contribution of 50% of the employees' contribution up to a maximum of 8% of
the employees' gross salary. Employees are vested 25% per year after
completing one year of service and are fully vested after four years.
Contributions made for the year ended December 31, 2001 were $179.
9. SALE OF ASSETS
--------------
During the year ended December 31, 2001, the Company sold land and received
proceeds of $45,000 and recorded a gain of approximately $43,000 related to
the sale.
10. RELATED PARTY TRANSACTIONS
--------------------------
During the year ended December 31, 2001, the Company paid off a note to a
general partner in the amount of approximately $502,000. Additionally, the
Company repaid advances to general partners' in the amount of approximately
$162,000.
33
TRANS-LUX CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Allowance for Doubtful Accounts
For the Years Ended December 31, 2001, 2000 and 1999
Balance at Additions
Year ended Beginning Charged to Costs Balance at
December 31 of Year and Expenses Deductions (1) End of Year
- ----------- ---------- ---------------- ------------ -----------
1999 $574 $281 ($354) $501
2000 $501 $97 ($287) $311
2001 $311 $298 ($144) $465
- ------------------------------------------------------------------------------------
(1) Deductions represent uncollectod accounts charged against the
allowance, net of recoveries, and other.
34
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) The information required by this Item with respect to directors is
incorporated herein by reference to the Section entitled "Election of
Directors" in the Company's Proxy Statement.
(b) The following executive officers were elected by the Board of Directors
for the ensuing year and until their respective successors are elected.
Name Office Age
- ------------------ ---------------------------------------- ---
Michael R. Mulcahy President and Co-Chief Executive Officer 53
Thomas Brandt Executive Vice President and Co-Chief 38
Executive Officer
Matthew Brandt Executive Vice President 38
Al L. Miller Executive Vice President 56
Angela D. Toppi Executive Vice President, Treasurer, 46
Secretary and Chief Financial Officer
Karl P. Hirschauer Senior Vice President 56
Thomas F. Mahoney Senior Vice President 54
Messrs. Mulcahy, Hirschauer, Mahoney and Ms. Toppi have been associated in
an executive capacity with the Company for more than five years.
Mr. T. Brandt was elected Executive Vice President and Co-Chief Executive
Officer on March 27, 2002, effective April 1, 2002, and has been employed since
1985. He served as Senior Vice President in charge of theatre operations
between September 27, 1997 and April 1, 2002, and as Vice President in charge
of theatre operations between May 22, 1991 and September 27, 1997.
Mr. M. Brandt was elected Executive Vice President on March 27, 2002,
effective April 1, 2002, and has been employed since 1985. He served as Senior
Vice President in charge of theatre operations between September 27, 1997 and
35
April 1, 2002, and as Vice President in charge of theatre operations between May
22, 1991 and September 27, 1997.
Mr. Miller was elected Executive Vice President overseeing electronic
display manufacturing, materials and field service and the outdoor display
operations on March 27, 2002, effective April 1, 2002. On September 27, 1997
Mr. Miller was elected Senior Vice President of manufacturing and materials and
on February 1, 2000, field service operations were added to his area of
responsibility. Mr. Miller has been employed by the Company since 1995. Mr.
Miller served as Vice President in charge of manufacturing and materials between
March 13, 1995 and September 27, 1997.
(c) The information required by Item 405 of Regulation S-K is incorporated
herein by reference to the Section entitled "Compliance with Section 16(a) of
the Securities Exchange Act of 1934" in the Company's Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by reference to
the Section entitled "Executive Compensation and Transactions with
Management" in the Company's Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated herein by reference to
the Section entitled "Security Ownership of Certain Beneficial Owners,
Directors and Executive Officers" in the Company's Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated herein by reference to
the Section entitled "Executive Compensation and Transactions with
Management" in the Company's Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) Financial Statements of Trans-Lux Corporation:
Consolidated Statements of Operations for the Years Ended December
31, 2001, 2000 and 1999
Consolidated Balance Sheets as of December 31, 2001 and 2000
Consolidated Statements of Cash Flows for the Years Ended December
31, 2001, 2000 and 1999
36
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 2001, 2000 and 1999
Consolidated Statements of Comprehensive Income for the Years Ended
December 31, 2001, 2000 and 1999
Notes to Consolidated Financial Statements
Independent Auditors' Report
Financial Statements of MetroLux Theatres, a 50% owned entity,
accounted for by the equity method:
Independent Auditor's Report
Balance Sheet as of December 31, 2001
Statement of Income for the Year Ended December 31, 2001
Statement of Partners' Equity for the Year Ended December 31, 2001
Statement of Cash Flows for the Year Ended December 31, 2001
Notes to Financial Statements
(2) Financial Statement Schedules:
Schedule II - Valuation and Qualifying Accounts
(3) Exhibits:
3(a) Form of Restated Certificate of Incorporation of the Registrant
(incorporated by reference to Exhibit 3.1 of Registration No.
333-15481).
(b) By-Laws of the Registrant, filed herewith.
4(a) Indenture dated as of December 1, 1994 (form of said indenture is
incorporated by reference to Exhibit 6 of Schedule 13E-4 Amendment
No.2 dated December 23, 1994).
(b) Indenture dated as of December 1, 1996 (form of said indenture is
incorporated by reference to Exhibit 4.2 of Registration No.
333-15481).
10.1 Form of Indemnity Agreement -- Directors (form of said agreement is
incorporated by reference to Exhibit 10.1 of Registration No.
333-15481).
10.2 Form of Indemnity Agreement -- Officers (form of said agreement is
incorporated by reference to Exhibit 10.2 of Registration No.
333-15481).
10.3 Amended and Restated Pension Plan dated January 1, 2001 and
Amendment No. 1 dated April 1, 2002, filed herewith.
10.4(a) 1989 Non-Employee Director Stock Option Plan, as amended
(incorporated by reference to Exhibit 10.4(a) of Form 10-K for the
year ended December 31, 1999).
(b) 1992 Stock Option Plan (incorporated by reference to Proxy
Statement dated April 3, 1992).
(c) 1995 Stock Option Plan, as amended (incorporated by reference to
Proxy Statement dated April 7, 2000).
37
10.5 Credit Agreement with First Fidelity Bank dated as of August 28,
1995 (incorporated by reference to Exhibit 10(d) of Form 10-Q for
the quarter ended September 30, 1995). Fourth Amendment Agreement
dated as of December 19, 1997 (incorporated by reference to Exhibit
10.5 of Form 10-K for the year ended December 31, 1997). Sixth
Amendment Agreement dated as of November 5, 1998 (incorporated by
reference to Exhibit 10.5 of Form 10-K for the year ended December
31, 1998). Eighth Amendment Agreement dated as of June 3, 1999
(incorporated by reference to Exhibit 10 of Form 10-Q for the
quarter ended June 30, 1999). Ninth Amendment Agreement dated as of
December 31, 1999 (incorporated by reference to Exhibit 10.5 of Form
10-K for the year ended December 31, 1999). Letter Agreement dated
as of September 30, 2000 and Letter Agreement dated as of December
31, 2000 (incorporated by reference to Exhibit 10.5 of Form 10-K
for the year ended December 31, 2000.
10.6 Employment Agreement with Richard Brandt dated as of September 1,
2000 (incorporated by reference to Exhibit 10(a) of Form 10-Q for
the quarter ended September 30, 2000).
10.7 Consulting Agreement with Victor Liss dated as of April 1, 2002,
filed herewith.
10.8 Employment Agreement with Michael R. Mulcahy dated as of April 1,
2002, filed herewith.
10.9 Employment Agreement with Thomas Brandt dated as of April 1, 2002,
filed herewith.
10.10 Employment Agreement with Matthew Brandt dated as of April 1, 2002,
filed herewith.
10.11 Employment Agreement with Al Miller dated as of April 1, 2002, filed
herewith.
10.12 Employment Agreement with Karl Hirschauer dated as of January 1,
2000 (incorporated by reference to Exhibit 10.10 of Form 10-K for
the year ended December 31, 1999).
10.13 Employment Agreement with Thomas F. Mahoney dated as of June 1,
1998 (incorporated by reference to Exhibit 10 of Form 10-Q for the
quarter ended June 30, 1998). Amendment to Employment Agreement
dated as of May 31, 2001 (incorporated by reference to Exhibit 10(b)
of Form 10-Q for the quarter ended June 30, 2001).
10.14 Employment Agreement with Angela Toppi dated as of January 1, 2000
(incorporated by reference to Exhibit 10.13 of Form 10-K for the
year ended December 31, 1999).
10.15 Agreement between Trans-Lux Midwest Corporation and Fairtron
Corporation dated as of April 30, 1997 (incorporated by reference to
Exhibit 10(a) of Form 8-K filed May 15, 1997).
21 List of Subsidiaries, filed herewith.
(c) No reports on Form 8-K were filed during the last quarter of the period
covered by this report.
38
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized:
TRANS-LUX CORPORATION
by /s/ Angela D. Toppi
-------------------------
Angela D. Toppi
Executive Vice President and
Chief Financial Officer
by /s/ Robert P. Bosworth
-------------------------
Robert P. Bosworth
Vice President and
Chief Accounting Officer
Dated: March 29, 2002
39
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated:
/s/ Richard Brandt March 29, 2002
- -------------------------------------
Richard Brandt, Chairman of the Board
/s/ Victor Liss March 29, 2002
- -------------------------------------
Victor Liss, Vice Chairman of the
Board
/s/ Steven Baruch March 29, 2002
- -------------------------------------
Steven Baruch, Director
/s/ Matthew Brandt March 29, 2002
- -------------------------------------
Matthew Brandt, Executive Vice President
/s/ Thomas Brandt March 29, 2002
- -------------------------------------
Thomas Brandt, Executive Vice President
and Co-Chief Executive Officer
/s/ Howard M. Brenner March 29, 2002
- -------------------------------------
Howard M. Brenner, Director
/s/ Jean Firstenberg March 29, 2002
- -------------------------------------
Jean Firstenberg, Director
/s/ Robert B. Greenes March 29, 2002
- -------------------------------------
Robert Greenes, Director
/s/ Gene F. Jankowski March 29, 2002
- -------------------------------------
Gene F. Jankowski, Director
/s/ Howard S. Modlin March 29, 2002
- -------------------------------------
Howard S. Modlin, Director
40